Dividing Up Retirement Benefits
Retirement should be some of the most relaxing and happy years of a person’s life. No one should have to worry about what may happen to their retirement savings and benefits should they go through a divorce. When going through a divorce, the first question on a person’s mind is usually “how will my xyz be divided?” Retirement savings and benefits are no exception to that question.
In North Carolina, any retirement benefits or funds, vested or non-vested, acquired during marriage is considered marital property and is subject to equitable distribution during divorce. To determine how much of a retirement account, deferred compensation benefit, or other employer-based retirement plan is subject to division, North Carolina uses a simple math equation called the coverture fraction: divide the length of time a spouse was simultaneously married and contributing to a retirement account by the total length of employment during which the retirement account was contributed to. Generally, a spouse may not receive more than 50% of the marital portion of the other spouse’s retirement account, but there are some exceptions to this rule. For example, if marital assets are insufficient to cover an equitable distribution award, then a spouse may receive an additional percentage of their spouse’s retirement account.
When the working party starts earning retirement benefits before the marriage, valuation can become more difficult. Generally, North Carolina courts allow parties to keep separate property that is theirs before the marriage. However, marital funds can become commingled with separate property and funds over time. Parties should keep this in mind when contributing to their retirement accounts.
Parties can either split retirement account payments or one spouse may receive a lump sum buyout. A lump sum buyout may require the court or an appraiser to determine the current value of the retirement account and calculate a fair portion.
To divide a retirement account, the parties need to enter a qualified domestic relations order (QDRO). The QDRO establishes one spouse’s right to a portion of the account. The QDRO also instructs the retirement plan administrator to divide the benefits as specified in the order and makes each spouse a co-beneficiary of the account, which makes both parties liable for their portion of taxes owed.
The attorneys at Hatcher Law Group are well versed in QDROs and the ins and outs of dividing up retirement benefits. If you or someone you know needs counseling on any of these matters, schedule a consultation with one of our attorneys today.