How will my retirement accounts be divided in my divorce?

Retirement savings, including 401k or IRA plans, are often the subject of discussion when couples are contemplating divorce. In general, courts consider retirement funds added during the course of a marriage — and funds accrued during a marriage — as marital property, which means they can be divided as part of a divorce.

Depending on the type of retirement accounts you have, the court will use a number of factors to divide them. There are two types of retirement savings: qualified and nonqualified. Qualified plans include work retirement plans like pensions or 401ks. Nonqualified plans include IRA and Roth IRA plans.

There is typically a penalty when you attempt to withdraw money early from these plans, but Congress has relaxed the standards for divorcing couples.

For most qualified plans, the court will issue a qualified domestic relations order that specifies how the account will be split. The party who is seeking funds from the other party’s retirement savings is then responsible for reaching out to the company that manages the account. The spouse who is seeking the funds typically has a few options: leave the funds under the same management but in a new account; direct rollover of the funds into the spouse’s own retirement account; take a lump sum before a rollover, which can also be taken in the form of cash. Depending on your financial situation, it may make sense to do any one of these options, but you should consult with your attorney and financial advisor before acting.

For non-qualified plans, like an IRA, the non-participating spouse can either change the name on the account to his or her name or can receive a direct transfer of funds to his or her own accounts.

Regardless of whether you’re holding retirement accounts or seeking them from your soon-to-be-ex, your attorney and financial advisor can help you navigate the process.

Domestic relations decision makers and arbitrators

In 2006, the state passed a law that helps courts work through particularly high conflict family law cases. The law formalized what many courts had been doing in family law for years, which was appointing parenting coordinators or domestic relations decision makers in cases where the couples needed a third party to help navigate their dispute.

There are three levels of resources a court may use. The first is a parenting coordinator, which was discussed in this post (link to previous post). In some instances though, a parenting coordinator may not be appropriate. The court may use a domestic relations decision maker in other instances, where the parties need more intervention or oversight.

A domestic relations decision maker is given binding authority to resolve disputes between the parties as to the implementation or clarification of existing orders regarding the parties’ children, including but not limited to: disputes concerning parenting time; specific decisions regarding a child like medical care or schooling; and child support. Both parties must agree in writing to use a decision maker, and the parties will create a written agreement that specifies that person’s role. This person’s role is not to create a new parenting plan but to ensure that the existing plan is implemented as written. If the parties need to modify their existing agreement, they will have to return to court to do so.

The final level a court may use in a high-conflict family law case is arbitration. This process involves a much more formal approach because an arbitrator has the ability to modify or change the rights and interests of the parties. Like the decision-maker, the parties will create an agreement with the arbitrator that outlines the arbitrator’s authority and limitations.

To learn more about these resources, here’s a helpful article.

Preparing for child custody mediation

Parents who are navigating the divorce process are increasingly using mediation to help set up custody agreements and parenting plans. The mediation process can be useful for parents who want the help of a neutral third party to develop a long-term parenting plan for their kids that is mutually acceptable to both parents.

Research has shown that use of a mediator during this process can help ease the stress and transition that kids may experience during divorce. Additionally, parents report being more satisfied with the mediation process that the court or litigation process to establish custody and parental agreements.

The success of the mediation process, however, relies on both parents being open-minded and willing to negotiate for the sake of the children. Before you attend a mediation, consider talking with your attorney about all of the options, and even developing a list of your parenting goals so that you have a reference point throughout the process.

This helpful article also includes a list of Do’s and Don’t’s for Mediation:

Do focus on your child's needs.

Don't focus exclusively on your own needs.

Do think of custody as a separate issue relating only to what is best for your child.

Don't discuss child support or property when trying to resolve your parenting plan.

Do acknowledge your child's special needs according to her age, temperament, and development.

Don't assume there is a standard plan that fits the needs of all children.

Do acknowledge the other parent's strengths and bring up only valid concerns about the other parent's ability to care for your child.

Don't bad-mouth the other parent.

Do acknowledge that your child needs time with both of you, in a safe environment, developed by a parenting plan.

Don't punish the other parent by withholding your children.

Do go to mediation prepared with:

A proposal for custody and a time-sharing plan

A calendar which identifies school holidays, your work schedule, your child's activities

A flexible and business-like attitude

Don't go to mediation unprepared.

Questions to consider before hiring your attorney

Questions to consider before hiring your attorney

Before you decide to work with an attorney, always do some initial research on them. Check out their website, research any reviews written about them, check out his or her office and make sure you’re comfortable. And always ask questions when you meet with them. Below is a list of some helpful questions to consider when hiring an attorney:

• How many divorce cases have you handled? Is divorce or family law your primary practice area?
•  Have you handled any cases similar to mine? How did you handle them?
• How heavy is your caseload? And how accessible are you throughout the process?
• Do you practice collaborative divorce?
• What is your theory about divorce? And how involved will I be in this process and the strategy behind the case?
•   How much do you charge?
•  How expensive will the entire process be?
• Are there other people in the office I will be working with? Can I meet them?
• Have you worked with my spouse’s attorney before?
•   How familiar are you with the family law judges?
• Do you have experience dealing with all the issues in my case? (child custody? Maintenance agreements?)

In addition to these, here’s a helpful list of additional questions you may consider. Many attorneys will charge a nominal fee for an initial consultation, and you should be prepared to ask your questions during this time. Get a feel for the attorney during this meeting and ask yourself whether you can see working with him or her.

A primer on spousal support, or maintenance

At the end of a divorce case, a judge has the option to set up a spousal support order where one spouse would pay a certain amount of money to the other under certain conditions. This agreement, which is also called maintenance, can work in a variety of ways. Maintenance agreements aim to help ease the economic transition that one spouse may have at the end of the marriage. 

The judge will look at each case separately. So, depending on your circumstances — including whether both spouses work, how long you were married, whether you shared assets or maintained separate accounts — the judge can set up a range of plans. It’s best to sit down with your attorney well in advance of the maintenance order to ask questions and ensure you understand what may happen.

Below are a few of the commonly used maintenance support agreements. Note that parties or the court may modify maintenance at a later date, because the circumstances may change, making the original order unfair.  For example, the party who is responsible for paying may lose his or her job, get a raise or otherwise need to ask the court to change the amount due to the other spouse. By law, the maintenance award terminates when the spouse who receives the funds gets remarried, dies, or where the parties agree to end the payments.

1

      Modifiable amount for an indefinite or specified period

Courts frequently use an agreement where one party will pay a specified amount to the other, either for a specific period of time or for an undetermined amount of time. Additionally, under a definite period or specified period agreement, the maintenance payments stop either when a certain date occurs or when the spouse receiving payments gets remarried, whichever happens first.

2    Decreasing amounts over a specified period of time

Another frequently used agreement establishes that one party will pay a certain amount of money for a specified amount of time, and then additional payments will decrease for a further amount of time. These agreements exist where the spouse who is receiving money may be reentering the workforce or searching for new employment over the course of the agreement. While the agreement does not end when the spouse receiving money finds a new job, the agreement can sometimes be modified after a certain period of time to accommodate new economic circumstances.

Contractual, fixed amount over a specified period of time

Contractual maintenance establishes the amount and duration of maintenance, and removes jurisdiction from the court to later modify maintenance.  While the court may not order contractual maintenance, parties may reach an agreement that maintenance will be contractual.  Contractual maintenance offers both parties certain protections, by ensuring that neither party will ask the court to modify the agreement reached.  However, it also poses risks to both parties, in that even if circumstances change (such as the paying party losing a job, or the receiving party becoming disabled and unable to work), the court cannot make adjustments.

Speak with an attorney about the maintenance options available to you, including the maintenance formula, which serves as a guide to judges when considering how much maintenance to award.