Generally, property owned prior to the marriage is typically considered separate property. This includes the funds in your pension or retirement account. The portion of a retirement account earned during your marriage is considered marital property and will be divided in your judgment of divorce.
For example, if you worked at Ford Motor Company for 10 years prior to marriage and continued to work for another 15 years while married, the value of your retirement 401k account or pension for the 10-year period prior to marriage would be separate property. In contrast, the amount accumulated during the 15 years of marriage would be considered a marital asset subject to division by the court.
An important consideration in dividing pensions, in particular, is whether the pension has vested. A pension may not vest until an employee has worked for an employer for a number of years. The valuation of the marital portion of the pension can be tricky in cases where a pension is unvested or only partially vested. There are multiple methods of addressing this issue, such as deferring distribution until the pension is fully vested to maximize the potential benefit. Talking to a lawyer will help you make the most educated decision on how to handle such matters.
Also be aware that there are multiple types of retirement accounts such as traditional IRA’s, Roth IRA’s, pension and profit sharing plans and 401K’s.. The type of retirement account can make the transfer of assets complicated in terms of dealing with taxes and withdrawal penalties. 401K’s usually require the entry of a qualified domestic relations order or QDRO to effectuate the transfer of assets, while an eligible domestic relations order, or EDRO, divides state or local government retirements. Again, your attorney can help you navigate this tricky portion of your divorce.
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