Going through a high-asset divorce is quite stressful. Unless you have a prenuptial agreement on record, chances are strong that you and your spouse do not agree on the terms of the divorce. Issues involving child custody, spousal support and asset division are common. You may find yourself worrying about the way that your divorce could impact your retirement.
If you and your spouse built up substantial investments during your marriage, whether as part of an employer-sponsored pension plan or in investment accounts like 401(k)s, the courts will have to decide how to split them up fairly in your divorce. Understanding how the courts approach this process can help you predict the most likely results of the split on your retirement funds.
Ohio courts focus on fair and equitable asset division
Every state has its own unique approach to dividing the assets and debts you acquire during your marriage. These assets, referred to as marital property, are typically subject to division. Property owned outside of or prior to marriage, including gifts and inheritances, typically do not end up divided. It’s important to realize that the date of when you acquired the asset is more important than whose name is on the account or whose job contributes to it.
While the Ohio courts do try to fairly and equitably divide your marital property, that doesn’t always mean that they split things up evenly between both spouses. In fact, in some situations, one spouse may end up receiving more of the marital property than the other.
The courts will probably divide your retirement and pension account
Unless it was fully funded prior to your marriage, the courts will very likely divide the contents of your retirement account. If they do not, they may offset their value by awarding other considerable assets to your spouse instead. The good news is that only the funds contributed during your marriage will be subject to division.
Contributions and deposits from before your wedding will likely remain your sole and separate property. Any amounts accrued during your marriage, however, will belong to both spouses. There’s a silver lining to this knowledge, however, which is that you won’t have to worry about early withdrawal fees, fines or taxes if the process is done properly.
Court orders protect you from incurring financial penalties
A Qualified Domestic Relations Order (QDRO) is one of the only ways that you can withdraw or split assets from a tax-sheltered retirement account without incurring penalties. The court order will typically name your spouse and identify a percentage of the account that your spouse should receive.
The manager for your fund or account will then create a new account for your spouse and deposit the appropriate percentage into the new account. So long as this is all done as a result of a QDRO and proper court order, you won’t have to worry about any fees, taxes or financial penalties from that split.