Couples going through a divorce must resolve many issues and come to an agreement that a judge will approve. Spouses often struggle to determine how to divide marital property in a fair and equitable manner. There is a wide range of types of marital property, including retirement accounts. It is helpful to understand how to properly split retirement accounts in a Wisconsin divorce.
Types of Retirement Accounts
There are several main types of retirement accounts. Different types of accounts are divided differently in a divorce. The first step is to make a list of all retirement accounts held by both spouses. These may include the following types:
- 401(k) plans – 401(k) plans are retirement accounts made through your employer. Typically, employees pay into the account using pre-tax salary.
- TSA plans – Tax-sheltered annuities (TSA) are plans such as 403(b). These are retirement accounts offered by tax-exempt organizations and some public school employers. Both employers and employees may contribute to these plans.
- IRAs – There are several types of IRAs. These are retirement accounts that may allow the employee to contribute pre-tax earnings or, in some cases, the employee will pay tax up front but will not be taxed when they receive the funds.
- WRS – Wisconsin Retirement System is a hybrid retirement plan that is both a defined-contribution plan and a defined-benefit plan where the employer makes contributions. It is a type of 401(k) retirement plan.
- Other Retirement Benefits – One or both spouses may also have additional retirement benefits, such as from Social Security. If a couple is married for more than 10 years, a spouse may be entitled to a portion of the other spouse’s social security benefits.
Determine the Value of Retirement Accounts
In order to properly split property in a divorce, spouses will need to know their value. It is necessary to find out the value of the retirement accounts of both spouses. You will need to know specific details about each account, including the date it was opened and the amount of money paid into a retirement account before and during the marriage. This will make it easier to distribute the funds from the accounts.
How to Split Retirement Accounts
Wisconsin is a community property state. This means that assets that are accumulated during the marriage are considered marital assets and are community property. Marital assets are to be divided equally when a couple divorces. Regardless of which spouse paid into a retirement account, the funds paid are from marital property and therefore belong to both spouses equally. A judge in your divorce case will stipulate how spouses are to divide retirement accounts. When both parties have similar retirement accounts, the judge may order each spouse to retain their own funds. Another option is to split accounts using a QDRO.
Split Retirement Benefits with QDRO
A QDRO (Qualified Domestic Relations Order) is a legal judgment or order that specifies how retirement benefits are to be paid. It provides details as to exactly how a retirement account is to be paid out between parties. When a QDRO is in place, the retirement plan pays out according to the order. It may be paid in a lump sum or payments, or it may be rolled into another IRA. The IRA plan itself will provide for when the retirement funds may be paid.
Retirement accounts can be complex and could become an area of dispute between spouses in a divorce. It is helpful to seek legal guidance to help ensure that you receive the portion of benefits that you are entitled to under the law. To learn more, contact us today at (608) 784-8310 or online to schedule a consultation.