Do I Have to Share Retirement Accounts in a Michigan Divorce?
When you get divorced in Michigan, you may have to divide your retirement accounts or a portion of your accounts with your soon-to-be ex. However, Michigan does not simply divide marital assets like retirement benefits 50/50.
Instead, courts that decide property division in divorce cases must divide assets fairly based on various factors like the length of the marriage, each spouse’s financial situation, and each spouse’s contributions to the marriage, including as a homemaker. Thus, courts may divide the value of Michigan retirement accounts like IRAs, 401(k)s, and pensions in a manner that recognizes the couple’s circumstances and avoids unnecessary taxes or financial burdens from dividing assets.
How Are Retirement Accounts Divided in Michigan Divorces?
Michigan follows an equitable distribution system for dividing marital assets in a divorce. Unlike community property states that always evenly divide marital property, Michigan’s equitable distribution system focuses on achieving a fair division of marital property between spouses. However, a fair division does not necessarily mean an equal division of marital property.
In a divorce, a couple may call on the court to decide the division of marital property. Divorces only divide marital property. They do not divide each spouse’s separate property.
Separate property includes all property owned by a spouse before marriage, any separate gifts or inheritances received during marriage, and any assets directly traceable to a spouse’s separate property. Marital property generally includes all property acquired by a couple during their marriage, regardless of which spouse has their name on the title or ownership document for an asset.
In Michigan, retirement accounts, such as 401(k)s, Traditional/Roth IRAs, and pensions, can qualify as marital property subject to division if a spouse opened the account during their marriage. However, even if a spouse had a retirement account before getting married, any contributions or growth in value of the account that accumulates during the marriage may constitute marital property.
When a spouse opens a retirement account during marriage, the court may divide the entire account during divorce. However, if a spouse had an account before marriage, the court will divide only the principal contributions and the value growth accumulated during the marriage.
Dividing tax-advantaged retirement accounts during divorce will require the court and a couple to consider the tax implications of a division, as withdrawing money from such accounts before retirement can trigger significant tax penalties. Transferring interests in retirement investments may also have tax implications for spouses.
How Do I Protect My Retirement Account in a Michigan Divorce?
If you have a retirement account, you can protect the wealth you’ve built.
There are various ways to do this, such as:
- Pre or post-nuptial agreements – A couple may sign a pre-nuptial or post-nuptial agreement that designates a spouse’s retirement account as separate property not subject to division in divorce. Although couples can create post-nuptial agreements after getting married, they cannot do so in contemplation of divorce. Instead, couples considering getting divorced must enter a divorce settlement agreement.
- Documenting premarital contributions – Keeping detailed records of your premarital contributions and the growth in value accumulated before your marriage can ensure the court recognizes that portion of your account as separate property not subject to division.
- Negotiating or mediating a settlement with trade-offs – To avoid having the court decide on a split of assets, spouses may negotiate a settlement or attend mediation to settle the property division question in their divorce. In a divorce settlement, a spouse with a retirement account may offer their soon-to-be ex a trade-off of other marital assets, such as equity in the marital home, to allow the spouse to keep their entire retirement account.
Negotiating protection for your Michigan retirement account in divorce through a pre-nuptial or post-nuptial will require couples to make transparent financial disclosures to ensure the validity of any agreement. Furthermore, couples should work with experienced legal counsel and tax professionals to help them avoid mistakes that could lead to unintended tax consequences or other financial penalties.
The Role of a Qualified Domestic Relations Order
A qualified domestic relations order (QDRO) or Domestic Relations Order (DRO) is a court order issued as part of a divorce judgment that divides a spouse’s retirement benefits. A divorcing couple will need a DRO to divide benefits from qualifying retirement accounts, such as 401(k)s, 403(b)s, or defined-benefit pensions. Non-qualifying retirement accounts, such as IRAs, usually do not require QDROs.
A QDRO tells the retirement account administrator how to divide benefits when the account begins paying out benefits, identifies the alternate payee (the account holder’s ex-spouse), and tells the administrator where and when to pay funds from the account. A QDRO must meet specific requirements under the Employee Retirement Income Security Act (ERISA) and additional requirements outlined in the retirement account plan for the account administrator to honor the order.
QDROs facilitate the division of retirement assets by notifying retirement account administrators that a portion of the benefits should go to the account holder’s ex-spouse. These orders also avoid tax issues that could occur due to early withdrawals from tax-advantaged accounts or taxes triggered by transferring assets by keeping funds in the account until the account reaches payment status.
How Can Kraayeveld Family Law Help Me Navigate Retirement Account Division?
The legal team at Kraayeveld Family Law can help you navigate the challenges of dividing retirement accounts in Michigan.
We work to protect your hard work and financial future by:
- Taking the time to sit down with you to discuss your situation, concerns, needs, and goals to develop tailored legal strategies aimed at securing the best result for you in your divorce case
- Utilizing our in-depth knowledge of Michigan divorce law, which allows us to aggressively pursue a favorable outcome to the property division question
- Leveraging our extensive experience with high-asset divorces, which enables us to tackle the challenges that may arise in dividing complex or high-value assets like investment accounts and other retirement assets
- Keeping you updated throughout your divorce case and providing the advice and understanding you need to make informed decisions
Protect Your Retirement Assets with Help from a Michigan Divorce Attorney
When you get divorced, talking to an experienced divorce attorney as early as possible in the divorce process can help you protect your financial rights and interests in the retirement assets you’ve worked hard to build.
Contact a Michigan Family Lawyer from Kraayeveld Family Law today by filling out the contact form on our website or giving us a call at (616) 383-2679 for a confidential consultation to learn more about splitting 401(k) accounts and other retirement funds in a divorce in Michigan and what you might expect in your case. Our office is conveniently located at 990 Monroe Ave. NW Grand Rapids, MI 49503. Feel free to visit us for a case evaluation!