Retirement funds are often among the most valuable assets a divorcing couple owns, although before retirement they are often not given a whole lot of thought. How they are treated is one of the most important considerations to be dealt with in a divorce case, and in order to do that, the rules of the road need to be understood by both attorney and client. How such funds are distributed may be one of the most consequential decisions to be made in the divorce process, and there is a lot to know.
Understand the Different Types of Retirement Accounts that are Considered in a Divorce
In order to know what to do with retirement assets, it is important to first understand what it is that you, or your spouse, own. Basically, there are two styles of retirement plan: the defined benefit plan, which guarantees the owner an income stream in a predetermined amount each month, starting from a fixed age through the end of the pensioner’s life; and the defined contribution plan, which has a fixed value at any given point in time, just like a bank or brokerage account. Defined contribution plans are usually in one of two forms: the 401(k) account, which is funded by withholdings from an employee’s paycheck and contributions from his or her employer; and the Individual Retirement Account (“IRA”), which is either funded with a worker’s savings, “rolled over” from a 401(k) with a prior employer, or both. There may be multiple accounts if the person has had multiple employers. A person going through a divorce needs to be certain to know how many accounts they and their spouse have, and what kinds of accounts they are.