Divorce proceedings are often quite complex, and require conversations about property, assets, child custody, and other sensitive issues. Any number of these elements can bring their own level of complexity, but one of the more involved aspects has to do with retirement accounts. Let's explore how North Carolina handles the division of these benefits during a divorce.
Under What Category Is Retirement?
The state views retirement and pension plans like they do other property and assets, and treats these benefits with the same equitable distribution guidelines as other items of monetary value. This means that even if only one person in the relationship worked and saved for retirement, upon divorce, both parties would be entitled to an equitable share of that money. Keep in mind that equitable does not always mean fair or 50/50. Equitable is what the Court deems to be fair based on several factors.
When The Benefits Get Complicated
Retirement plans are more difficult to deal with when it comes to equitable division, especially when the money hasn't been fully vested. Different legal professionals will have different methods for determining the value that is to be split between both parties. Pension and retirement plans vest when all requirements necessary to receive the money are met. Unvested pensions however also still count towards marital property and can be distributed in the event of a divorce.
Some use a calculation based on how long the couple has been married and how long the individual has been contributing to their retirement, while others call in independent experts to place a valuation on the money. If you and your spouse are able to agree on a settlement, the courts will always prioritize your decision.
Different Methods For Different Plans
The court generally classifies retirement and pension accounts into two separate groups: contribution plans and benefit plans. In the first grouping, plans in which both an employer and employee have been contributing will be much easier to valuate, as the balance is always current.
Other types of plans, where a defined benefit is promised at a later date in time, can be more tricky to assess. This is typically where other individuals like a pension valuator or business appraiser comes into play.
Thinking About Taxes
No matter what type of pension is at stake, it must be distributed correctly to avoid huge tax obligations. This documentation is termed a QDRO, or Qualified Domestic Relations Order, and directs fund managers to distribute benefits from a retirement account between two different beneficiaries. If this process is not followed, the receiving parties will be taxed at the rate of a full distribution rather than a division based on a divorce.
When it comes to finances and divorce, the processes can be complex and often bring up a lot of questions. If you are concerned about receiving your fair share of a retirement or pension account and have questions about how to proceed, contact our offices today.