Your Right to Retirement Assets
Feb. 28, 2023
Divorce is often a time of great stress and emotion. Both spouses will want to hold onto as many assets as possible so they can move forward in life with some feeling of comfort—but inevitably, there must be a division of what are called marital assets. Generally speaking, marital assets are anything acquired in either spouse’s name during the time of marriage unless it was obtained by gift or inheritance. This includes money socked away in a retirement account by either spouse.
Michigan’s divorce standards aim at an equitable distribution of marital assets. This means that the results might not be 50/50 as in a community property state, but can be somewhat tilted to allow each partner to have a fair financial chance at starting over.
If you are contemplating or already involved in divorce proceedings in or around Bingham Farms, Michigan, contact Steven L. Rotenberg, PLLC for compassionate and comprehensive guidance on how to achieve an equitable dissolution of your marriage. With more than two decades’ experience, family law attorney Steven L. Rotenberg can help you achieve an uncontested divorce or if need be, represent your interests in court. He proudly serves clients throughout Michigan, including Monroe, Pontiac, Mount Clemens, and the metro Detroit area.
Division of Property in Michigan
Michigan law draws a distinction between separate property and marital property. Separate property is anything acquired prior to marriage, and marital property is anything acquired during marriage by either partner except, as noted, if it is a gift or inheritance.
Marital property is subject to division upon divorce, including any money placed in or accrued in a retirement account during the time of marriage. Also as noted, the courts deciding a divorce will aim for an equitable distribution of marital assets based on several factors, including:
The length of the marriage
The source of the acquisitions
Each spouse’s contribution to the acquisitions
The needs of each spouse and the children, if any
The earning potential of each spouse
The cause of the divorce
General principles of equity and other factors
How Retirement Assets Figure In
If either spouse started a retirement account after being married, then the full value of the account upon divorce would most likely be up for division. If either or both spouses continue contributions to a retirement plan after marriage, then the value of the account during the time of marriage—contributions plus accrual—may be subject to division.
One major complicating factor exists if a retirement account is of the defined benefit variety, which does not rely on contributions by the employee but is determined by an employer’s formula based on years of service and final salary. If a defined benefit plan is in the mix, you’ll certainly need the help of an attorney to come up with an equitable fair sharing of the assets.
QDRO Asset Distributions and IRA Transfer Incidents
Leaving aside defined benefit plans, that leaves two other types of retirement accounts. One is the defined contribution plan, which is offered at one’s place of employment. These plans include 401(k)s, 403(b)s, and others.
The other type is an Individual Retirement Account (IRA), which can be used by those who are self-employed or who are not offered an employer-sponsored option. Distributions/transfers from these two types of plans must follow different procedures to avoid immediate tax penalties. For a defined benefit employer-sponsored plan, the transfer, once determined or agreed upon, must be done through a qualified domestic relations order (QDRO) obtained from the court overseeing the divorce. However, if the recipient spouse doesn’t roll the money over into a personal retirement account, taxes will be immediately due. QDROs are only available for retirement accounts covered by the federal law known as the Employment Retirement Income Security Act, or ERISA, and IRAs are not covered by ERISA. Therefore, IRAs must be transferred differently.
The owner of the IRA must have the account custodian treat the distribution as a “transfer incident.” This relieves the spouse of any tax liability, but the recipient spouse will be on the hook for taxes unless he or she places the funds in a retirement account.
In both types of transfers, the court must approve the settlement or the IRS can require the transferee to report the distribution on their tax return as ordinary income, and in addition, will prevent the recipient from rolling the funds into a retirement account. Court approval of the retirement account division is essential.
Speak With an Experienced Family Law Attorney
The best route to an equitable distribution of assets is for the spouses to agree upon a settlement resolution that they can present to the court for approval. Sometimes, emotions and hard feelings may make a voluntary agreement difficult, but it is the most cost-efficient method. Arguing everything in court takes time and money, and there’s no guarantee that either spouse will be totally satisfied with the results.
For all matters relating to divorce and the division of marital assets, including retirement accounts, in or around Bingham Farms, Michigan, contact Steven L. Rotenberg, PLLC. Family law attorney Steven L. Rotenberg will work with you on crafting a divorce agreement that gives both parties peace of mind going forward.