During a divorce, you and your spouse must divide your marital assets. However, does your marital estate include your 401(k)? Can the court order you to split part of your 401(k) or other retirement accounts with your spouse in a Michigan divorce?
Understanding Equitable Distribution in Michigan
Michigan follows the equitable distribution model for dividing marital property in divorce. In the equitable distribution system, a court that divides a divorcing couple’s marital property must split the property fairly between spouses. However, a fair split does not always mean an even split. Instead, Michigan courts consider various factors, such as the length of the marriage, the parties’ respective age and health, the financial resources and earning capacity of each spouse, and each spouse’s contribution to acquiring and growing the value of the marital property (including contributions as a homemaker), to determine what a fair split of the marital estate looks like.
Is Your 401(k) Considered Marital Property?
A 401(k) or part of the value of a 401(k) may qualify as marital property subject to division in divorce. When a spouse opens a 401(k) account during their marriage, the entire account qualifies as marital property since the spouse acquired the asset during marriage.
However, even if a spouse had opened their 401(k) before getting married, any contributions and increase in value of the account during the marriage may constitute marital property; the account’s value accrued before marriage constitutes separate property not subject to equitable distribution. Thus, a Michigan court may determine that the other spouse deserves to receive a portion of the account under equitable distribution rules.
How Courts Divide a 401(k) in Divorce
Dividing a 401(k) or another tax-advantaged retirement account will require a qualified domestic relations order (QDRO). A 401(k) account holder cannot withdraw funds before retirement to provide their spouse with their share of the account without incurring significant tax penalties. Instead, a QDRO instructs the plan or account administrator to pay a portion of the account’s benefits to the account holder’s ex-spouse as an alternate payee. The order may delay payments until tax rules permit distributions from the account.
Alternatively, couples and courts may “divide” a spouse’s 401(k) account by compensating the other spouse for their fair share of the account with other marital assets, such as cash, real estate, or other investments.
Can You Protect Your 401(k) in a Divorce?
You can protect your 401(k) from equitable distribution in divorce in Michigan by negotiating a pre/postnuptial agreement under which you and your spouse agree not to divide your retirement accounts and instead treat them as separate property. However, when you and your spouse have contemplated getting divorced, you can negotiate a property settlement agreement to keep the entire value of your 401(k), usually by agreeing to let your spouse keep other marital assets of equivalent value.
Contact a Divorce Attorney Today
When you get divorced, you may worry about what will happen to your 401(k) or other retirement accounts. Contact Rodnick, Piraino & Ingber, PLLC, today for a confidential consultation with our legal team to discuss whether you may have to divide your 401(k) or other retirement accounts in divorce in Michigan.
