Divorce can bring major life changes, especially when it involves dividing retirement savings. Tennessee courts treat certain retirement accounts, such as 401(k) plans, IRAs, and pensions, as marital property. Having a clear understanding of the laws can help individuals protect their financial future during this challenging time.
Understanding what marital property is
Tennessee follows the principle of equitable distribution. Courts do not always split marital property evenly, but they do strive for fairness. Most assets and contributions gained during the marriage, including those made to retirement accounts, fall under marital property and can be divided. Contributions made before the marriage typically remain separate property and often stay with the spouse who owned them before the wedding.
Dividing 401(k) and other retirement accounts
Courts review several factors when dividing retirement accounts. These factors include each spouse’s contributions, the length of the marriage, and both spouses’ financial circumstances. Sometimes, one spouse may receive a portion of the other spouse’s 401(k) or IRA.
Another option involves offsetting retirement funds with other assets. For instance, one spouse may keep the entire 401(k) while the other spouse receives a similar value in real estate or other property.
Filing QDROs
A qualified domestic relations order allows a retirement plan administrator to create a separate account for the spouse who is receiving part of the retirement funds. This important document details the exact amount each spouse gets. It also helps avoid tax penalties for early withdrawal when the plan administrator transfers funds.
Planning for a stable future
When you work hard for your retirement, you naturally want to protect the savings you have built over the years. Making a balanced plan that respects each spouse’s contributions, while also addressing the unique needs of the future, allows each person to leave the marriage with more financial security.
