Divorce can be a messy process. There are so many issues and questions that you must consider. Finances, children, and homeownership are just a few things to examine and divide. Maybe you’re wondering, “What happens to a 401(k) during a divorce?”, or perhaps the main concern is, “Where can one find a qualified divorce lawyer?”. In this article we’ll examine precisely how retirement accounts divide in a divorce.
The State Of Virginia’s View On Property Division In A Divorce
Let’s consider the issue of separate versus marital property. Like many states, Virginia is an equitable distribution state. Property divides equitably during a divorce, that is to say, reasonably—but not necessarily fifty-fifty, as in some other states.
Separate property is acquired or already owned by one spouse before the marriage. For example, say the wife owned a vehicle before the wedding. After the divorce is finalized, the car is one hundred percent hers.
Marital property is the property that the couple acquired during the marriage. Suppose a husband and a wife opened an investment account together after getting married. In that case, the entire account is considered marital property, and both the husband and the wife have equal claim to it.
What About Retirement Accounts?
You may be wondering how a divorce affects various retirement accounts. Well, it doesn’t matter what type of retirement account you have. It could be a 401(k), an individual retirement account (IRA), or a pension. Of course, spousal rights to military benefits are slightly more complicated.
It boils down to two questions: when did the spouse get married, and when did they begin contributing or accruing money in this account? The answer is always the same when it comes to the division of these accounts. Let’s look at some examples below.
Dave worked for his local government for fifteen years. There was a pension plan that he contributed to while working there. He then left that job and started a new career before marrying his spouse.
Now that Dave is retired, the pension plan pays him five hundred dollars a month. Because Dave owned and contributed to the account before he got married, he gets one hundred percent of that pension, as it is separate property.
In our second scenario, Dave got married to his spouse, and shortly after, he began working for AMC corporation. He worked there for ten years while married and amassed a 401(k) account worth fifty thousand dollars.
Because the entire account came into being and grew during the marriage, it is considered marital property. The spouse is entitled to up to fifty percent of the amount, or twenty-five thousand dollars.
Lastly, we’ll examine a slightly more complex scenario. Dave worked for a local small business for five years before getting married. He then continued working there for five years after he got married.
Because it was a small business that didn’t offer a 401(k) or pension option, Dave opened an IRA. He contributed to the account the entire time he worked there. The account is now worth one hundred thousand dollars.
Dave’s spouse is entitled to up to twenty-five thousand dollars in the divorce, assuming Dave always contributed the same amount the entire time he worked there. The first five years of contributions (fifty thousand dollars) are one hundred percent Dave’s, as it’s considered separate property. The second five years of contributions (also fifty thousand dollars) are marital property. Ergo, the spouse is entitled to fifty percent, or twenty-five thousand dollars.
Final Thoughts
As you can see in the above scenarios, property division can become complicated in a divorce. Because of the complexities in both the law and the accounts themselves, anyone considering divorce must seek the advice of a qualified divorce attorney before beginning the process.
