Pensions and Divorce in Florida
Divorce can be a complicated, long, drawn-out process. It is difficult enough trying to understand the basics of property division without also having to figure out the nitty gritty details of how every source of income will impact your family.
That being said, retirement accounts such as 401k plans and pensions are an important part of property division, and need to be accounted for, particularly if you are trying to plan for your children’s future and how to pay the bills after being first separated from your spouse. This is because retirement benefits—like the family home—are assets too.
In Florida, all marital assets are subject to equitable distribution; in other words, anything acquired during the marriage (including interest) is divided up based upon what is fair. Any assets acquired prior to the marriage and inheritance are typically treated as non-marital property and not subject to division.
401k Plans vs. Pensions
401k plans specifically deduct a portion of an individual’s pay before or after taxes, and then an employer typically matches that deduction in some percentage. And in many cases, this income is taken out before taxes, which means it will not be taxed until it is withdrawn from the plan (i.e. during retirement). Thus, presumptively, the spouse with the higher income has arguably accrued more in terms of 401k retirement benefits. This is especially the case if one spouse stayed at home to take care of the children, thus not accruing any retirement benefits during those years.
A 401k is an example of a defined-contribution plan because the contributions are made over time for retirement in a tax-deferred arrangement. Other forms of traditional retirement accounts include IRA and Roth IRA accounts—both linked to employment. Pensions, on the other hand, are also known as defined-benefit plans; this account guarantees a certain amount of money upon retirement rather than accruing over time based upon salary.
401k plans and pensions are only one part in an assortment of potential retirement benefits, depending upon the job and the employer. Your attorney will need to look at the details of the retirement benefits, in whose name they are in, and make provisions for you during your retirement years to make sure that you are taken care of.
Important Note about Retirement Plans and Pensions
Similar to assets that were brought to the marriage, any amount that was earned before the marriage is not typically subject to division—only what the plan or account accrued during the marriage. In addition, you and your attorney will need to prepare a Qualified Domestic Relations Order to order to set up the right to receive a portion of the retirement plan’s balance or benefits and direct the retirement plan’s administrator to make the payments.
Contact Us for Help
If you are potentially facing a divorce, it is crucial to start planning early and to retain an experienced attorney to guide you along during the process. The law office of Sandra Bonfiglio, P.A. is equipped to help advise you and make financial arrangements. Contact us today and we can start providing you with the guidance you need.