How are Retirement Accounts, Investments, and Stock Options Handled in a Divorce?
For many families, retirement assets like pensions, 401(k) plans, Individual Retirement Accounts (IRAs), profit-sharing plans, and deferred compensation plans are the largest assets after the family home. Even if the retirement account or asset is earned solely by one spouse's efforts, the portion of it acquired during the marriage is still marital property subject to equitable division by the court. Courtney v. Courtney, 256 Ga. 97 (1986). In determining how a retirement account may be divided upon divorce, the following factors may be considered by the court for consideration, among other factual variables:
- The actual contributions made by the spouse who is not earning the retirement benefits, if any;
- The number of years of the marriage in which such contributions were made; and,
- The degree to which there has been a reliance on the expectations of these future benefits
Since Georgia is an equitable division state, courts have broad discretion regarding how marital property may be divided between divorcing spouses. Thus, a court may decide to allow the spouse who earned the pension or contributed to the retirement account to retain the entire retirement account upon divorce. However, if there are no other significant marital assets to divide and a failure to separate the retirement account would result in an unjust or inequitable division of property in which the non-contributing spouse is left with little or no marital assets, the court is likely to divide the marital portion of any retirement asset between the parties. The court may divide the retirement account between the spouses by percentages. For example, a court may award Spouse A 60 percent of the retirement account and award Spouse B 40 percent of the account. In the alternative, a court may award one spouse a fixed cash amount. For example, spouse A may receive $30,000 of a $100,000 retirement account, and spouse B would receive $70,000.
Although pensions, 401(k) plans, IRAs, profit-sharing plans, and deferred compensation plans are all subject to equitable division, to the extent the account was earned or contributed to during the marriage, the methods of dividing these various retirement assets are unique. IRAs by far are the simplest to divide upon divorce. IRA's may be divided by rolling a portion of one IRA into the recipient spouse's IRA. The division of IRAs upon divorce would, of course, be subject to the various rules governing IRAs.
Unlike IRAs, 401(k) plans and pensions may not be divided or rolled over into another account. To divide these types of accounts or retirement assets, it is necessary to obtain a Qualified Domestic Relations Order from the judge once the divorce has been finalized. This order, which is commonly referred to as a QDRO, is an order that is separate and distinct from the Final Judgment and Decree of Divorce. In most cases, these orders must be drafted by attorneys who specialize in this arena to ensure that these orders comply with the Retirement Equity Act of 1984, which is a Federal law that allows a retirement plan, pension, or 401(k) to distribute money to someone other than the plan participant. See Internal Revenue Code § 414(p) and ERISA § 206(d).
QDROs can be applied to retirement plans sponsored by most private employers. If a spouse has a military pension or certain government pensions, different types of orders with different types of forms may be required.