Dividing assets during a divorce can be tough, but few things are as complicated as splitting retirement accounts and pensions. For many couples, these accounts are among the most valuable assets on the table. But when it comes to dividing them, it’s not as simple as splitting a bank account.
Federal laws, like the Employee Retirement Income Security Act (ERISA), and Ohio divorce laws both come into play, making the process more complex than most people expect. The Parma, Ohio divorce attorneys at Mizak & Pacetti, LLC are here to break it down.
How Does Federal Law Impact Dividing Retirement Accounts in a Divorce?
ERISA (Employee Retirement Income Security Act of 1974) sets specific rules for how employer-sponsored retirement plans—like 401(k)s and pensions—are handled in a divorce. It ensures that the retirement funds are protected and can only be divided through legal procedures.
Here’s what you need to know:
- ERISA only applies to employer-sponsored plans. If you or your spouse have an IRA or other non-employer retirement account, ERISA doesn’t govern how it’s split.
- You can’t just send a divorce decree to the plan administrator and expect a transfer. A special legal order called a Qualified Domestic Relations Order (QDRO) is required to divide most ERISA-covered retirement plans legally.
If neither spouse has an employer-sponsored plan or if you’re not dividing those accounts, ERISA won’t apply.
Is My Entire Retirement Account Considered Marital Property in Ohio?
Whether your retirement account is considered marital property depends on when the contributions were made. Under Ohio divorce law, marital property includes most assets acquired during the marriage, but there are some exceptions.
Here’s how it breaks down:
- Pre-marriage contributions: Any funds contributed to your retirement account before you got married are usually considered separate property and are not divided.
- During the marriage: Contributions made after you got married are generally seen as marital property and can be divided between you and your spouse.
- Mixed contributions: If you contributed before and during the marriage, only the portion accumulated during the marriage is considered marital property.
For example, if you had $50,000 in your 401(k) before marriage and added another $100,000 during the marriage, only the $100,000 would typically be split.
How Much of My Retirement Account Will My Spouse Get?
Under Ohio law, marital assets are generally divided equitably—which doesn’t always mean 50/50. Courts aim for fairness based on the couple’s financial situation.
When determining how to split retirement accounts, Ohio courts consider:
- The value of each spouse’s retirement accounts.
- The portion of each account that is marital property.
- Other marital assets being divided (like the family home or savings accounts).
- Each spouse’s earning potential and future financial needs.
It’s not always a straight 50/50 split. For example, one spouse might keep a larger share of the retirement account while the other receives more from another asset, like home equity.
What Is a QDRO and Why Do I Need One?
If your divorce involves dividing an employer-sponsored retirement account, you’ll need a Qualified Domestic Relations Order (QDRO). This court order allows the plan administrator to legally divide the retirement account without penalties or tax consequences for the transfer.
Key points about QDROs:
- QDROs are complex and must meet both ERISA and the specific plan’s rules.
- Some retirement plan administrators provide QDRO templates to help attorneys prepare the document correctly.
- There are also specialized companies that assist in drafting QDROs to ensure they meet all legal requirements.
Without a QDRO, even if your divorce decree says your spouse should get part of your retirement account, the plan administrator won’t honor it.
What About Dividing IRAs or Other Non-Employer Retirement Accounts?
Unlike 401(k)s or pensions, IRAs and similar accounts are not governed by ERISA, so you don’t need a QDRO to divide them. However, you still need to follow specific legal steps to avoid tax penalties and ensure the division is recognized.
Typically, a process called a “transfer incident to divorce” is used for IRAs, which allows the tax-free movement of funds between accounts as part of the divorce settlement.
Going Through a Divorce? Protect Your Retirement Assets.
Dividing retirement accounts in an Ohio divorce is complex and requires careful planning. A simple mistake—like mishandling a QDRO or misunderstanding what counts as marital property—can cost you thousands in taxes, penalties, or lost retirement savings.
The Parma divorce attorneys at Mizak & Pacetti, LLC are experienced in handling these cases and can guide you through the process to protect your financial future.
Contact Mizak & Pacetti Today for a Free Consultation
If you’re facing a divorce and wondering how your retirement accounts will be affected, Mizak & Pacetti, LLC can help. We offer free consultations to walk you through the process and ensure your rights are protected.
