Types of Retirement Accounts Divided During Divorce

A Washington state divorce requires that the parties divide property and debts fairly and equitably either part of an agreement or during a trial. One common area of dispute is the division of retirement and retirement-like accounts. Whether informally or during a mediation, these financial accounts will need to be properly valued and divided. While attorneys are not financial advisors, they must have some base level of understanding of these accounts, and so must their clients, in order to properly reach resolution.

There are four major types of retirement accounts seen in Washington divorces:

401(k) - 
A 401(k) is a type of retirement savings plan offered by many employers. Essentially, the employee foregoes a portion of their salary, which is automatically placed into the account on a pre-tax basis. Often, the employer will match the deduction taken by the employee to help increase the retirement investment. These 401(k)s cannot be easily accessed until retirement age without significant tax and penalty, but they can be transferred as part of a divorce under a process called the Qualified Domestic Relations Order (QDRO).

IRA -
An IRA – or an Individual Retirement Account – comes in a few varieties, and you should speak with your financial advisor to ensure you are properly invested. For most IRAs, they can be opened regardless of employment status and grow in a tax advantage plan. Like 401(k)s, these retirement accounts are more difficult to access before retirement but can be transferred with a QDRO during a divorce.

Pension -
A pension is a retirement benefit provided by employers (and almost always provided in unions to some degree) that provides a guaranteed stream of income to the beneficiary upon retirement. The pension will often based the monthly payment amount on the number of years the employee worked for the company and their average salary while working. Upon retirement, the pension will start to pay a set amount. That pension amount can also be divided by QDRO as part of a divorce.

Stock/Investment Account -
A stock investment account can be used for retirement, but it can also just be used for money management before retirement as well. Stocks are shares of companies – often purchased as part of mutual funds or other types of accounts. These are tiny ownership stakes in individual companies that trade on the open market. Many employers will offer their employees stock options or restricted stock units as part of their employment. While a bit more complicated to divide, stock accounts do not require any special process to transfer.

As part of a divorce, it’s important to understand the differences between various forms of financial accounts. As part of the ultimate resolution, the parties will be valuing and dividing these accounts. If you or your partner have substantial retirement savings, you should speak with your financial advisor to help understand those accounts. At the same time, if you’re considering a divorce, you should speak with an attorney to understand how these assets are likely to be divided. The experienced family law team at the law offices of Magnuson Lowell PS are ready to answer your questions in a free case evaluation. Call today!

Share this post!