Retirement benefits are significant assets that can play a major role in the financial well-being of both parties post-divorce. In New York, retirement funds are considered marital property and, therefore, divided via equitable distribution. This means that the court will determine a fair and just way to divide retirement accounts between the spouses, regardless of who earned the benefits.
The division of retirement benefits isn’t always straightforward. While it is possible for retirement benefits to be split 50/50, this is not always the case. Several key factors may play a role in determining how retirement funds will be split between spouses, including the length of the marriage, each spouse's contribution to the retirement accounts, and the overall financial situation of the parties involved.
What Types of Retirement Accounts Are Divided in Divorce?
Many types of retirement benefits are considered marital property and can, therefore, be divided in divorce. Common retirement accounts involved in divorce include:
- 401(k)
- 403(b)
- IRAs
- Pensions
- Social Security
Each type of retirement benefit is treated differently in a divorce. The court will consider the value of these benefits and the contributions made during the marriage when deciding how to divide them.
401(k)s
401(k)s are often categorized as marital property and subject to division during divorce, even if only one spouse contributed to the account. In New York, a spouse may receive a portion of their former spouse's 401(k) during a divorce if the funds were contributed during the marriage. This doesn't necessarily mean a 50/50 split. The court will consider how much was saved during the marriage and determine what percentage each spouse should receive.
For example, if a couple has been married for five years and one spouse contributes $50,000 to their 401(k), the other spouse may be entitled to 50% of that amount, or $25,000. However, the final split may depend on how other marital assets are divided. For example, if both spouses have similar retirement accounts, they may decide to keep their own.
Another important question is whether a spouse can cash out a 401(k) during a divorce to avoid division. In general, it's not allowed to dispose of marital assets like retirement accounts after a divorce has started. Cashing out a 401(k) without the other spouse's consent is usually prohibited, and even if the account is emptied, the spouse may still request their marital share.
403(b)s
Similarly, a 403(b) retirement account is split equitably during a divorce or separation if it was acquired during the marriage. However, the benefits splits may be different across all retirement plans, as each plan will be split based on its individual merits.
IRAs
When it comes to IRAs, the account’s value at the time of the divorce will be divided between the spouses. The court will consider various factors when deciding, including when the IRA was opened and how much each spouse contributed.
If the IRA was opened during the marriage, the entire account balance is considered marital property and can be divided. However, if the IRA was opened before the marriage, only the portion that was contributed during the marriage is considered marital property. If the IRA was opened before the marriage, the marital portion is typically the difference between the account's value at the start and end of the marriage.
Pensions
Pensions are often among the most valuable assets involved in divorce, and their value can be challenging to assess. In general, the value of a pension is calculated by dividing the marital portion of the account between spouses. The marital portion is the amount of money accumulated in the account during the marriage. Any amount of a pension earned before marriage is considered separate property and will not be divided.
Pensions are typically divided using a formula that calculates the present value of future benefits. This formula can become complex and require the assistance of financial experts. For example, the value of the pension is often calculated based on the number of years the parties were married and the contributions made to the pension during the marriage.
An ex-spouse may be entitled to a portion of a pension earned during a marriage, even years after the divorce. However, an ex-spouse can't collect benefits until the member retires and starts receiving pension payments.
Does My Ex Get Retirement Benefits if They Remarry?
Another common question that arises during divorce proceedings is whether a spouse is entitled to their ex-spouse's retirement benefits if they remarry. In New York, the general rule is that a spouse is entitled to their ex-spouse's retirement benefits even if the ex-spouse remarries. However, there are exceptions to this rule, and it is important to consult with a qualified New York Divorce attorney to understand your rights.
For Social Security benefits, a spouse may be entitled to receive up to half of their ex-spouse's benefit if certain criteria are met, such as being married for at least ten years and not currently married. In general, if they remarry before age 60, they usually can only collect benefits if their new marriage ends. However, if they remarry after age 60 (age 50 for disabled individuals), they can continue to collect benefits.
For many types of retirement accounts, division during divorce is not automatic. The spouse requesting a share must file a qualified domestic relations order (QDRO) before the divorce is finalized. A QDRO is a court order instructs the retirement plan on correctly dividing the benefits.
Protecting Your Retirement During Divorce
You can take several steps to protect your retirement funds during divorce. For example, you may consider entering into a prenuptial agreement that clearly outlines how retirement benefits will be divided in divorce. Always review your retirement benefits for terms governing how the funds are to be divided. In addition, be familiar with whether a qualified domestic relations order (QDRO) is necessary to grant your ex-spouse retirement benefits.
Be sure to consider whether you can propose alternatives rather than dividing your retirement benefits. In addition, an experienced New York Divorce Attorney can help you optimize your opportunities and advocate for a fair division of retirement benefits.