How Does Retirement Division Work in a Duxbury Divorce?

Due to its complexity, dividing retirement assets in a Massachusetts divorce can be daunting. The good news is enlisting the support of legal, financial, and tax professionals can help prevent mistakes and minimize penalties. When you have the right professionals involved, dividing retirement assets should be methodic. With this in mind, here’s an overview of how retirement division typically works in Duxbury.

Identify retirement assets

In Massachusetts, all assets owned by either party, whether jointly or separately, are considered for division. Judges usually, but not always, divide the marital portion of retirement. Whether retirement assets are ultimately divided will depend on several factors, including the length of the marriage, the parties’ contributions, income, other existing assets, and the ability to acquire assets in the future.

There are various types of retirement accounts. The most common are 401(k)s, IRAs, pensions, and employer-sponsored plans. You can help your divorce team by collecting statements reflecting the various retirement assets you and your spouse own and any other information you have regarding their formation.

Timing is a relevant factor as only the portion of retirement assets accrued during the marriage will likely be subject to division. Contributions made before marriage are typically not included and, therefore, may not be subject to division in divorce. Either party can also argue for exclusion of contributions made after the date of separation. Whether these amounts are actually removed from the marital pot is at the discretion of the judge.

Value of retirement accounts

The next step in dividing retirement assets in a Massachusetts divorce is to value them. Markets change daily, impacting certain retirement accounts depending on where the assets are invested and the risk level involved.

Retirement assets are typically valued based on the date of divorce, i.e., when the marital clock is stopped. However, it could be another date the parties agree to or the judge orders, such as the date of separation.

Valuing retirement assets is easy for direct contribution plans, such as 401ks, 403bs, and IRAs. The balance you see on the statement is the value. However, valuing a direct benefit plan, like a pension is more difficu.t and often requires the assistance of a financial professional.

Negotiate a fair and equitable distribution

Massachusetts is an equitable division state. This means marital assets, including retirement accounts, will be divided fairly but not necessarily equally. As stated earlier, the court will evaluate various factors when determining how to distribute assets.

Because asset division is not determined according to a formula, negotiation is integral to divorce. Spouses have the right to negotiate the division of retirement assets through mediation, which does not require a judge. However, if spouses cannot agree, the court will intervene and make the final decision.

Complete the Qualified Domestic Relations Order (QDRO)

If retirement accounts have to be divided, you likely will require a Qualified Domestic Relations Order (QDRO) to transfer retirement assets between you and your spouse. A QDRO is a document instructing the plan administrator about how to divide retirement accounts under the divorce agreement or court judgment. Before going to the plan administrator, the court must approve the QDRO.

IRAs usually don’t require a QDRO, but most other retirement accounts, such as pensions, 401ks, and 403bs, do. A QDRO is necessary to divide retirement accounts so the plan is divided according to the court order or agreement, to ensure compliance with plan requirements, and to ensure spouses won’t incur unnecessary penalties or face tax consequences upon division of the accounts.

Consider the tax implications

Tax consequences, if any, can vary depending on how and when the retirement accounts are divided. Generally speaking, transferring funds directly between retirement accounts through a QDRO will not trigger immediate taxes. However, if one spouse withdraws funds from the retirement account before allowable withdrawals can begin, they may have to pay income tax on the withdrawals and possible penalties.

All of this will depend on the spouses’ ages and the types of accounts they have. Consequently, both parties should retain individual guidance from a Duxbury divorce attorney and financial advisor/tax professional with experience in divorce and retirement planning.

Assess the future financial impact of equitable division

When dividing retirement accounts in a Massachusetts divorce, it’s critical to consider how the division will be in the present and its potential impact on finances in the future. Like other investment accounts, retirement accounts depend on compounding interest and market increases for long-term growth. By dividing retirement assets in divorce, spouses may lose growth potential, which can affect how much they have in retirement and when they can retire.

Though dividing retirement accounts one way may seem fair at the time, if one spouse is substantially younger, for example, they may expect to enjoy more time to recover from the split. They can do this by leaving the asset alone because they have alternative sources of income from more years in the workplace or because they have more years during which they can contribute.

To address any potential discrepancies, spouses should work with their respective financial and legal advisors to assess how the present value of money will affect them. They may need to make additional contributions to retirement post-divorce or postpone their retirement. In some cases, it can make more sense to negotiate a trade-off during the asset division phase, where one spouse plans to keep more of the retirement funds in exchange for other assets, thereby preserving long-term financial stability for both parties.

Find a Duxbury asset division lawyer

Dividing retirement assets in a methodical and informed way can help to secure your financial future post-divorce. Hiring a team of professionals to help is thus wise.

At Farias Family Law, we understand how hard you and your spouse have worked to accumulate the assets you have and how much peace of mind means to you. Our Duxbury, MA team of divorce lawyers has extensive experience negotiating asset division, including asset division of retirement accounts, and can help with your and your spouse’s.

We work closely with a team of financial and tax professionals and are here to support you through any stage of divorce, whether you are thinking about divorce or seeking to switch counsel. Contact us today.