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Retirement Assets & Your Rights in Divorce

Rieper Law P.C. July 27, 2022

You’re married and contemplating divorce. You have savings in a retirement account, and perhaps your spouse does too. Can you keep your retirement savings, or are they subject to division during a divorce?

Like most states, Iowa draws a clear distinction between marital property and pre-marital property. Generally, anything acquired solely before marriage is considered pre-marital property; unless it is shared with your spouse or becomes commingled. 

An example of commingling could be a house you owned prior to marriage, but after marriage, your spouse helped you with the mortgage and other expenses. The spouse now has a right to some of the equity in the property, if not 50/50, at least partially.

The same holds true with retirement accounts. What you contributed and accumulated before marriage is pre-marital property. The contributions to your plan during the marriage become marital property subject to division during divorce.

Though these are the general guidelines, things can get tricky once negotiations for divorce terms begin between the two spouses or when the matter goes before a judge who must decide on the division of assets. A knowledgeable, experienced attorney is your best resource.

If you’re contemplating or already entering into divorce in Des Moines or central-Iowa, contact my firm, Rieper Law P.C., today for legal guidance. I am a family law attorney who has guided countless others through the divorce process and helped them work out a mutually acceptable division of assets. I proudly serve clients in Des Moines, Polk County, Dallas County, Warren County, Madison County, Jasper County, and Story County, Iowa.

Divorce in Iowa

Iowa is a no-fault divorce state, meaning you do not have to show someone’s actions or inactions are leading to the divorce. Rather, you just need to assert that the marriage is irretrievably broken. Of course, you still need to file for divorce, and before the divorce is granted, a judge will have to sign off on any settlement the two of you work out. 

Alternatively, if you can’t agree and leave everything for the court to decide, the judge will dictate the terms of your divorce, including the division of assets.

Iowa is also an equitable distribution state, as opposed to a community property state. A community property state generally begins with the assumption that everything acquired during the marriage should be split 50/50, though even then, the assets may change if one partner needs more assets or considerations to maintain a sustainable standard of living.

In an equitable distribution state, many factors are considered when dividing assets, but the basic defining elements of marital vs. pre-marital property remain. Above, I briefly mentioned how pre-marital property can become marital property or commingled property. Those standards still apply.

As for retirement accounts, the money invested during the marriage – from vows to separation – is considered marital property and is subject to distribution upon divorce.

Types of Retirement Accounts Affected

Though there are several different types of retirement accounts, they mainly can be broken down into three types:

INDIVIDUAL RETIREMENT ACCOUNTS (IRAs): Here, there are Roth and SEP IRAs, each with somewhat different rules for contributions and tax consequences.

DEFINED CONTRIBUTION PLANS: These are generally plans offered at one’s place of work, whether a 401(k) or 403(b), in which the individual participant designates a portion of their income into the plan. When the person reaches retirement age, the funds can be transferred into an IRA.

DEFINED BENEFIT PLANS: Some companies and many public entities offer this type of plan, which pays out benefits upon retirement based on considerations such as salary and length of service.

Division of Retirement Accounts Upon Divorce

If one spouse has a retirement account with, for instance, $200,000 in it, of which $100,000 was contributed during the marriage, then the other spouse would be entitled an equitable portion of that, often half. The spouse with the retirement savings does not necessarily have to fork over the $50,000, however.

As an alternative means of settlement, the couple can agree to divide assets in a different way to cover that entitlement. For instance, the other spouse may be awarded the house with more equity, and the retirement plan spouse can keep the accumulated savings.

In addition, if one spouse is subject to military retirement benefits, then that presents another avenue for distribution. Check with me on the special rules for military retirement asset distributions.

The Role of the QDRO and Tax Liability

To avoid tax consequences, distributing funds from a retirement account requires the court to issue what is called a Qualified Domestic Relations Order (QDRO). If the recipient of funds from a QDRO then rolls the distribution into a qualified retirement account, there will be no taxes due. Otherwise, taxes will have to be paid.

On the other hand, if the owner of the retirement account simply withdraws funds and awards them to the spouse, the owner will be liable for distribution taxes.

If the funds are in an IRA, then another method can be used called a “transfer incident.”  This requires that you submit a special form to the bank or investment firm holding the funds along with a copy of the divorce papers.

Let Rieper Law P.C. Help You

If you are contemplating or in the early stages of a divorce and need help resolving everything, including the distribution of assets, contact me immediately. It’s always better if the spouses can work out a settlement on their own, but sometimes this isn’t possible. In either case, at Rieper Law P.C., I stand ready to help with compassion and aggressive defense of your rights.

If you’re in Des Moines or anywhere in Polk County, Dallas County, Warren County, Madison County, Jasper County, or Story County, reach out today, and let’s work toward a resolution that is mutually beneficial and agreed upon.