In many Florida divorces, retirement accounts constitute one of the most valuable marital assets. Under Florida’s equitable distribution law, each spouse is entitled to half of the value of the collective retirement of both spouses built with contributions during the marriage. The basic assumption during a divorce in Florida is that all assets and debts accrued during the marriage will be divided equally although this does not necessarily happen in every case.
The concept of equitable distribution of a retirement account differs in Florida from some other equitable distribution states. In some states, each spouse keeps his or her own retirement account if they both have a retirement. This approach to equitable distribution applies even when there is a substantial disparity in value between the spouses’ retirement accounts. In Florida, the total cumulative value of both spouses’ retirement is split by the parties. If the husband has a 401K worth $275,000 and the wife has a 401K worth $25,000, for example, each spouse would receive $150,000 or fifty percent of the total value of their retirement accounts accrued during the marriage. This example assumes that all contributions to both retirement accounts were made during the marriage.
When a pension that is based on years of service is being divided the process is slightly more complicated. A ratio is used to calculate the non-pensioned spouse’s share of the pension based on the number of years of service and the number of years of marriage. This ratio will be used to determine what percentage of the pension belongs to the spouse who does not have the pension.
While the divorce judgment will include an equitable distribution of retirement accounts, this does not conclude the process of protecting a spouse’s interest in the other party’s retirement. A Qualified Domestic Relations Order (QDRO) needs to be prepared that conforms to the company’s requirements and submitted to the court. The QDRO provides instructions to the plan administrator regarding how to disburse the retirement funds between the parties. If a QDRO is not prepared, the plan administrator will pay all of the retirement account funds out to the participant’s spouse. Although the spouse that is not the plan participant would still have a right to his or her equitable share, the non-participant spouse would need to pursue his or her ex-spouse to get paid. Most spouses would rather rely on the administrator of a pension plan rather than an ex-spouse for his or her share of a retirement account.
If you work with an experienced Florida divorce attorney, there also are ways that the non-participant spouse can immediately obtain his or her equitable share of an IRA and 401K without incurring penalties. If the parties agree that the participant spouse will pay the non-participant spouse $50,000 from an IRA account as an offset for equity in the family home or a waiver of alimony, this amount can be paid now without penalties for early withdrawal. However, the taxes on the money will have to be paid because it is income to the recipient’s spouse. When negotiating an equitable distribution, the tax consequences of potential settlements need to be carefully evaluated.
Issues involving the division of a retirement plan can be one of the more complex but important issues in a Florida divorce. If you have questions or concerns about the equitable distribution of retirement accounts, we invite you to speak to one of our experienced Florida divorce attorneys.
Author’s note by Attorney Howard Iken: In a Florida divorce, retirement accounts are split equally between spouses. A QDRO needs to be prepared to disburse the retirement funds, and there are ways for the non-participant spouse to obtain their share without penalties. It’s important to consider tax consequences, and working with an experienced Florida divorce attorney is crucial.