Your Right to Retirement Assets
You've worked hard to build your retirement savings and your financial portfolio. But what happens to those resources in a divorce?
At Middle Tennessee Family Law, we know that navigating the complexities of divorce and property division can feel overwhelming. That's why we're here — to provide you with the information and guidance you need during this challenging time. We're proud to serve clients throughout Middle Tennessee, including Franklin, Murfreesboro, and Nashville. Our aim is to empower you with the knowledge that can make all the difference in your case.
Understanding Marital Property vs. Separate Property
One of the key factors in determining how your retirement savings and financial portfolio will be divided in a divorce is understanding the difference between marital property and separate property. In general, marital property refers to assets that were acquired during the course of the marriage, while separate property includes assets that were owned prior to the marriage or were received as a gift or inheritance.
It's important to note that this distinction may not be as black and white as it seems. In some cases, separate property can become marital property if it was commingled with marital assets or used for the benefit of the marriage. Additionally, the laws surrounding marital and separate property vary from state to state, so it's crucial to work with a knowledgeable attorney who is familiar with the laws in your jurisdiction.
Tennessee Is an Equitable Distribution State
Divorce in Tennessee brings with it the daunting task of property division. Tennessee does not follow community property rules. We follow equitable distribution principles, which means property is divided fairly, but not necessarily equally. Various factors come into play in this process, such as:
the length of your marriage,
each spouse's age,
each spouse's health,
each spouse's financial circumstances, and
each spouse's contributions to the marriage.
It's key to remember that Tennessee is not a community property state, so each case can present unique challenges and outcomes.
Retirement assets that were acquired during the marriage are considered marital property in Tennessee. This means they're subject to division during a divorce. But it's essential to understand that not all retirement assets are automatically divided equally between spouses.
For instance, any retirement assets that a spouse owned prior to the marriage or received as a gift during the marriage may be considered separate property and not subject to division.
Can I Keep My 401(k) After a Divorce?
The answer to this question depends on various factors, including the type of retirement account and the length of your marriage. In Tennessee, any funds contributed to a 401(k) during the marriage are considered marital property and subject to division.
Can I Keep My Inheritance After a Divorce?
Inheritance can be a tricky topic when it comes to property division in divorce. Generally, inheritance received during the marriage is considered separate property and not subject to division. However, if funds from an inheritance were commingled with marital assets or used for marital purposes, it may be subject to division.
Understanding Qualified Domestic Relations Orders (QDROs)
When it comes to dividing retirement assets in a divorce, you might come across the term Qualified Domestic Relations Order (QDRO). A QDRO is a legal document that lays out the rights of an alternate payee, typically the non-employee spouse, to receive a portion of the retirement benefits.
Tax Ramifications of QDROs
Generally, withdrawals from a retirement account before reaching the age of 59 1/2 lead to a 10% early withdrawal penalty plus income tax. However, the IRS provides an exception for withdrawals made under a QDRO as part of a divorce settlement. This means that the spouse receiving the distribution won't be hit with the 10% early withdrawal penalty.
But here's where it gets tricky: while the early withdrawal penalty doesn't apply, regular income tax does. If you receive a distribution from your ex-spouse's retirement plan under a QDRO, you'll have to report that money as taxable income.
There are strategies to defer these taxes, though. For instance, you can directly roll over the distribution into your own qualified retirement plan or an individual retirement account (IRA). By doing this, you avoid paying taxes on the distribution until you start making withdrawals in retirement.
No matter what, it's crucial to work with an experienced attorney who can guide you through the process of drafting and obtaining a QDRO to safeguard your right to an equitable division of your assets.
Protect Your Right to Retirement Assets
Remember, the information we discussed in this blog is just a summary of the information. For comprehensive legal advice tailored to your specific circumstances, we recommend consulting with an attorney. At Middle Tennessee Family Law, we're here to help you protect your finances and your future and secure the best possible outcome for your case. Contact us today in Franklin, Tennessee, to schedule a time to talk about your situation with an experienced divorce attorney.