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How do Alabama courts handle your retirement accounts?

Other than custody and visitation regarding children from your marriage, the division of your assets is usually the most contentious aspect of a divorce. If you and your spouse have a standing prenuptial agreement, it helps to ensure that you know what to expect.

Similarly, if you agree to terms for asset division before filing, it could simplify the process. In most other cases, the courts will need to intervene and make decisions about how to allocate both assets and debts.

Many people facing divorce worry about their marital home. The next biggest asset many couples develop during marriage is usually a retirement or investment account. Understanding how Alabama courts handle asset division and how they view your retirement account will help you understand the most likely outcome for your retirement funds.

Alabama focuses on equitable distribution in divorce

The law in Alabama instructs family court judges to consider a number of factors in determining what is fair and equitable for any given couple going through divorce. A judge will look at your individual economic status, the custody arrangements for any children, medical issues or special needs, the length of your marriage and the standard of living you enjoyed during marriage. All of these details will help the judge determine what is fair for your situation.

Generally speaking, marital assets are subject to division, while assets considered separate are not. Assets you acquired before marriage, items that were gifts and possessions you inherited will usually be separate property.

Retirement accounts funded during marriage, regardless of whose name is on the account, will usually end up classified as marital property, excluding deposits prior to your marriage. That could affect how much you have to rely on for retirement and may even necessitate working for extra years to make up the lost funds.

Retirement account division in divorce won't incur penalties

One of the biggest concerns about withdrawals from a retirement account, like a Roth IRA or a 401(k) is the potential for fines, penalties and taxes. Many retirement accounts have a structure that includes these built-in deterrents to early withdrawal. Thankfully, when the courts order the division of your retirement account, you will not have to worry about potential financial penalties.

When the court decides that your retirement account should get split between both spouses, they issue a Qualified Domestic Relations Order (QDRO). This special court order instructs the account manager handling your retirement fund to create a new account in the other spouse's name and deposit a specific percentage of the funds into that newly created account. So long as the division is done in accordance with the court order, neither you nor your spouse will have to worry about early withdrawal penalties.

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