Divorce is not just focused on untangling emotions. You need to think about separating those finances as well. For many couples, one of the biggest assets is their retirement savings. Whether it’s a 401(k), IRA, or pension, these accounts often represent decades of hard work and planning. When it comes to splitting assets, you want to make sure you get your fair share.
So, how exactly are retirement accounts divided in an Ohio divorce? Here is what you need to know.
Ohio Is an Equitable Distribution State
When dividing marital property, Ohio uses the principle of equitable distribution. However, that does not always equal a clean 50/50 split for the spouses. Instead, it focuses on a division that’s fair for both sides. For this process, the judge will consider factors like:
- Length of the marriage
- Each spouse’s income and earning capacity
- Contributions made by each spouse, including non-financial contributions, like raising children or managing the household
- Future financial needs
Retirement accounts are a part of the process. If the funds were earned or contributed during the marriage, they are considered marital property and subject to division.
What Is Marital vs. Separate Property?
Remember that not every dollar in a retirement account is up for grabs. Ohio law distinguishes between marital property and separate property. Marital property includes any contributions made and any growth on those contributions throughout the marriage.
On the other hand, separate property involves contributions made before the marriage. These can include inheritances, gifts, or funds that can clearly be traced as belonging to one spouse only.
Dividing Different Types of Retirement Accounts
Not all retirement savings are created equal. The way that they are divided will depend on the type of account. Here are a few examples:
401(k)s and 403(b)s
These employer-sponsored plans require a special court order called a Qualified Domestic Relations Order (QDRO). This order instructs the plan administrator on splitting the account without triggering taxes or early withdrawal penalties. For example, if the court awards your spouse 40% of your 401(k), the QDRO makes sure that the transfer happens smoothly.
IRAs
Individual Retirement Accounts do not require a QDRO. However, they still need careful handling. These transfers are done through a “transfer incident to divorce.” This will help to avoid taxes and penalties.
Pensions
Pensions promise a future stream of income instead of a lump sum balance. These can be complicated to divide. However, courts will use actuarial calculations to determine the present value of the pension and divide it accordingly.
Sometimes, the spouse who owns the pension keeps it, while the other spouse is compensated with different assets, like home equity. Many times, the non-employee spouse gets a percentage of the pension payments once they start.
There Are Tax Considerations
Dividing retirement accounts is more than splitting balances; you also have to consider tax consequences.
Some accounts are funded with pre-tax dollars, like traditional 401(k)s and IRAs, while others are funded with after-tax dollars, such as Roth IRAs. That means $50,000 in a Roth IRA is worth more in real dollars than $50,000 in a traditional IRA since withdrawals from a Roth are tax-free.
Courts keep these differences in mind during the equitable division process.
Protect Your Retirement Accounts with Help from an Ohio Divorce Lawyer
Now that you know how retirement accounts are divided in Ohio, you can start to protect your interests.
Unfortunately, it is not as easy as splitting a checking account. You need to know the difference between marital and separate property, the different account types, and the tax implications of each choice.
With help from an experienced Ohio divorce lawyer, they can guide you through the process and help protect your financial future.
Divorce is the end of one chapter and the start of another. At Axelrod & Hellier Law Offices, we are ready to help you move forward. Reach out to us to schedule a consultation.