Your Rights to Retirement Assets
Sept. 30, 2022
Washington is a community property state, which means that any assets or debts acquired during the time of one’s marriage or during a state-registered domestic partnership are owned or obligated 50/50. The 50/50 division is enforced no matter which of the partners acquired the asset or debt as long as it occurred during the marriage or partnership.
The question often arises: “I had a 401(k) at work prior to getting married, and now that we’re divorcing, is my spouse entitled to 50 percent of it?” Since the retirement fund existed prior to the marriage, the calculation of which portion your spouse is entitled to becomes challenging.
Remember that community property must be acquired during the time of marriage or the time of a qualified domestic partnership. Therefore, any money accumulated in a 401(k) prior to marriage is not subject to division, but funds deposited and earnings accumulated during the legal partnership are considered to be owned 50/50. The qualifying 50/50 period of division begins when the marriage or partnership becomes official and ends when a lasting separation occurs (separation before divorce).
As you can imagine, the computation of what is subject to division in a retirement account can be tricky. You will no doubt need the assistance of a qualified and experienced family law attorney to help you sort through any retirement accounts subject to division.
If you are considering divorce, have been served divorce papers, or are already in the process in or around Tacoma, Washington, and you have questions and concerns about the division of your retirement account, contact our family law attorneys at Curiale Hostnik PLLC. We have three decades of experience helping individuals reach equitable solutions to their divorce and subsequent division of assets.
Our team at Curiale Hostnik PLLC also proudly serves clients in Puyallup, Gig Harbor, University Place, and Lakewood, Washington.
Relying on the Courts vs.
Deciding Among Yourselves
When it comes to divorce, most couples prefer to work out a divorce agreement outside of the courtroom. Though the spouses may have a hard time getting along and agreeing on anything, the cost of spending days in court trying to paint the other spouse as undeserving is often the deciding factor in working together toward what is called an “uncontested divorce.”
Though Washington is basically a community property state, a judge has some leeway in awarding an unequal distribution. The factors used to determine whether to stray from a straight 50/50 division include the nature and extent of the community property, the length of the marriage, and each spouse’s financial situation. If an equal division would leave one spouse in an inferior position, an unequal distribution might be justified.
However, the courts will often turn to spousal maintenance – or alimony – to equalize the financial situation of each spouse rather than skew the distribution of assets.
Division of Retirement Accounts by Type
As discussed briefly above, it can be a complicated task of analysis to determine exactly what a spouse’s retirement account amounted to during the time of marriage. Sometimes, the easiest approach is for both spouses to agree on what might be considered a swap of assets.
Say one spouse contributed $200,000 to a 401(k) during the marriage. Rather than take out $100,000 and fork it over to the other spouse, the two spouses may agree that the 401(k) spouse gets to keep that account while the other spouse gets assets equal to $100,000. Of course, this may not always be possible, so a division and distribution must be undertaken, which brings on tax and other implications.
Types of Retirement Accounts & Their Division
A 401(k) is what is known as a defined contribution plan. The employee at work agrees to contribute a certain amount of their payroll to the retirement account. Sometimes, the employer matches a portion. In this type of retirement plan, the funds in the account can be accessed and distributed to the other spouse without tax implications so long as the transfer is done properly.
To transfer funds from a 401(k), the couple must obtain a Qualified Domestic Relations Order (QDRO) from the court. Presenting the QDRO to the institution administering the 401(k) allows for a transfer without paying taxes on the withdrawal. If the recipient requests a direct cash-out of the funds, however, taxes will be due. It is better to roll over the proceeds into the QDRO account or another qualified retirement account.
Another method of division is to wait until the account holder retires and then receive a specified percentage of the proceeds or a lump sum payment equivalent to the share owed.
An IRA (Individual Retirement Account) must be treated differently. You cannot use a QDRO, but you can request “a transfer incident to divorce” from the plan administrator. This will make the transfer tax-free, so long as the funds go into the other spouse’s IRA, either newly created or already existing.
A defined benefit plan is different. A defined benefit plan is employer-sponsored. Employees are entitled to a certain percentage of their income when they retire, based on years of service and departing salary.
In this case, unless a “swap” of assets can be agreed upon to account for future retirement benefits, the spouse will have to wait until the other spouse retires. At that point, either a lump sum payment or a monthly percentage of benefits can be utilized.
If your spouse is entitled to military retirement, there are various laws affecting how those funds can be accessed. You will need to confer with an experienced attorney to discuss your options regarding the division of a military retirement account. Contact us immediately.
Seek Experienced Legal Counsel
As you can see, 50/50 may sound like a simple formula on the surface, but as you dig into the details of the assets acquired during your marriage or partnership, you soon realize that tabulating what’s owned – and what’s owed – can be tricky.
Our family law attorneys at Curiale Hostnik PLLC stand ready to help you arrive at a joint divorce agreement that will enable both partners to move confidently into the future. Let us help you decide on a division of property that honors both spouses’ needs and wishes going forward. We serve clients in Tacoma, Puyallup, Gig Harbor, University Place, and Lakewood, Washington.