Alabama law sets specific requirements for when and how a judge may divide a retirement account to divorcing parties.
The U.S. Department of Labor reports that more than 46 million people living in Alabama or across the country have some kind of employer-provided retirement account. These accounts are often eligible for division when a couple is going through a divorce.
There are a number of laws that dictate how much money may be split as well as what the couple must do in order to avoid unnecessary fines and fees. Anyone ending a marriage should be familiar with how these accounts will be addressed.
General property division laws
Under Alabama law, all marital property will be divided in an equitable fashion. This does not mean that assets are split equally, but rather, fairly. Marital property refers to most property acquired during the marriage, other than inheritance one party receives or items that are noted in a pre- or post-nuptial agreement.
Retirement accounts may fall into this category. However, a judge does have the discretion to determine whether to split the funds in the account or find another solution. For example, if a judge determines that the value of a home and the value of a retirement account are the same, it could be that one spouse keeps the account and the other keeps the home.
When accounts are split
Alabama law specifically addresses retirement accounts in divorce, noting that they are only eligible for division when the following is true:
- No funds acquired prior to the marriage are subject to division.
- The couple has been married for at least 10 years.
- The non-covered spouse may not receive more than 50 percent of the eligible funds.
Additionally, any benefits that are awarded to the non-covered spouse can only begin once the covered spouse either turns 65 or receives his or her benefits. Of course, the couple could agree to an alternative solution, awarding the non-covered spouse with a lump sum payable either all at once or over several installments.
Using a QDRO
It is essential for anyone splitting a retirement account to know when a qualified domestic relations order is required. A QDRO is one of the most common types of orders and ensures that the recipient will not have to pay early penalties or taxes if retirement funds are disbursed.
Federal law requires a QDRO so that the institution that holds the account can distribute the money. Even if a divorce agreement acknowledges that the non-covered spouse is entitled to funds, the institution is only permitted to pay it if there is a QDRO in place.
Dividing retirement accounts can be a complicated process due to issues such as determining current and future value and taking taxation into consideration. Anyone who has questions about this issue should consult with an attorney.