A multitude of events in your life can cause your marriage to suddenly make a turn for the worse. You may have thought that you were getting ready to retire only to have that sidelined because you’re facing getting divorced. Retirement plans are considered marital property in most states including here in Ohio. If you were fortunate enough to have drafted a prenuptial agreement, then your husband or wife may not be entitled to your retirement at all.
There are a variety of different retirement plans including a Defined Contribution Plans like a 401(k), a Defined Benefit Plans, such as a pension and then an Individual Retirement Accounts (IRA).
It’s relatively straightforward to determine a 401(k)’s value because they are given a daily cash value or balance.
It can be harder to determine the value of a pension since they don’t have a daily defined value. They essentially function like a promissory note. The administrator of that account promises to pay a person a specified amount upon retirement. Any contributions accumulated before and after the marriage aren’t generally considered marital property.
IRAs are much simpler to divide up than employer-sponsored qualified retirement plans when you divorce. The court will generally determine each spouse’s portion. The husband or wife’s proceeds can then be rolled over into another IRA without them incurring any tax consequences or penalties. If a spouse decides to spend the proceeds rather than rolling them over into another IRA, then there may be tax implications including early withdrawal penalties.
When it comes to the division of a retirement plan between divorcing spouses, the process can be lengthy and complex. There are a variety of tax implications to consider, as well as premature penalties for early withdrawal. An attorney here in Hamilton can help you make sense of the many different options available to you and the pros and cons associated with each of them.