When two people marry, they often combine assets and begin saving for the future, usually through retirement plans and benefits. However, the Centers for Disease Control and Prevention (CDC) reports that for every 1,000 married members of the population, 3.2 got a divorce in 2014. It’s important for those divorcing to understand what steps, standards, and procedures Virginia courts use to divide retirement accounts.
Equitable Distribution and Separate or Marital Property
Virginia divides assets between two parties by first categorizing property into either eligible (marital property) or ineligible (separate property) for division. However, Virginia is also an equitable distribution state, meaning they take into account what divisions are fair, which may not necessarily mean an equal split. So what do these terms mean?
- Separate property is anything acquired by one spouse outside of the marriage and not mixed in with shared assets. Also, separate property could be any asset kept totally apart from marital funds, or any inheritances made to one spouse.
- Marital property is any shared or mutual property, including anything acquired with marital finds during the marriage or any asset maintained with shared funds.
Applying Equitable Distribution to Retirement Accounts
Two main types of retirement accounts may be divided in divorce proceedings:
- Defined Contribution Plans: An employer and an employee can each contribute a preset amount to a savings account each month to build a defined contribution plan. Individual Retirement Accounts (IRAs), 401(k)s, and Thrift Savings Plans (TSPs) are common in this category.
- Defined Benefit Plans: Also, an employee can earn a predetermined amount each month from his employer based on a formula while he works his way to retirement. Upon retirement, the employee has access to these earnings, otherwise known as a pension. Government and civil servant jobs often offer these accounts.
It’s important to remember that only marital property is eligible for division in a Virginia divorce. For example, if you’ve been contributing to an IRA for 15 years, but you’ve been married only 10, then the 5 years of contributions preceding the marriage will not be included in divisions. When determining how to execute divisions, courts will also take into account the expected standard of living for each spouse, whether or not an account was combined with marital funds, and future earning potential of each spouse. Additionally, no spouse may receive more than 50% of the other’s benefit earnings during division.
When it comes time to transfer funds from a retirement account, an attorney can help you implement a special order—commonly known as Qualified Domestic Relations Orders (QDROs)—to make a withdrawal without being penalized for early access to the account.
When You Need Experienced Legal Help
If you’re currently going through a divorce and need to better understand how a Virginia judge might divide your retirement accounts, our legal team can help. At Tavss Fletcher, we’ve served clients’ needs for decades, and we’re here to answer your questions. If you need to speak with a member of our team today, start a live online chat on our website.