The Planned and the Unplanned: Retirement Accounts in a Divorce

While the future is uncertain and planning for it can sometimes be difficult, many people try to better prepare themselves by creating reliable plans. One way to do this is to create a retirement account to set yourself up financially for life after employment. But what happens when life gets in the way of these plans? People don’t enter a marriage with the intention of getting a divorce, but once the divorce process begins and assets begin to be divided, you may wonder whether your retirement accounts are vulnerable to division during a divorce. This blog is designed to answer that question for you.

Are Retirements Accounts subject to Split in a Divorce?

The answer to this question depends on if the retirement account is considered a marital asset in South Carolina. An asset is deemed marital property so long as it was at least partially purchased with marital funds during the marriage.

Suppose a retirement account was established during the marriage. In that case, it is likely a marital asset, and the spouse may be entitled to a portion of it, perhaps even more than half, depending on the circumstances.

In contrast, if the retirement account was created before marriage, it is likely not considered a marital asset. However, a retirement account can transform into a partial marital asset if contributions are made to the account during the marriage. If a retirement account was created before marriage and marital funds were used to grow the account, then the account could become a partial marital asset. This would mean that any money put into the retirement account during the marriage would be considered fair game in a divorce proceeding.

It is also important to note that a retirement account can also transform into a marital asset if a spouse is added to the account. This would indicate to the court that the account holder intended the account to be a marital asset.

To put this in perspective, consider the following example:

Rebecca and Jesse are in the middle of a divorce and are in the process of dividing their assets. Before they were married, Rebecca started a retirement account through her employers, and she had $10,000 in the account. She did not touch this account during the duration of their marriage, and thus this would likely be considered a non-marital asset. On the other hand, Jesse started a retirement account a year after they were married and contributed to it monthly throughout their marriage. Based on this, Jesse’s retirement account would be considered a marital asset in South Carolina.

How are Retirement Accounts Divided in a Divorce?

South Carolina is an “equitable division” state that requires family courts to consider evidence from both sides and determine a fair and equitable division of the assets. Although South Carolina favors a 50/50 distribution of the marital estate, the courts may deviate from this for various reasons like the duration of the marriage, the reason for the divorce, etc. If a retirement account is deemed a marital asset, the court could divide the account between the two spouses or award the entire account to one spouse if they deem it fair and equitable.

The court will consider the retirement accounts’ valuation when deciding what is equitable. If the entire account is regarded as a marital asset, then the court will typically take the account’s value when the divorce was filed in addition to any interest that might have accrued. However, if the retirement account is considered a partial marital asset, then the valuation is based on the account’s value from the date of marriage to the filing date.

The division of a retirement account can look different depending on what type of account it is. If it is IRA, this is typically a quick process that only requires a few forms to be filled out. However, the process is complicated when dealing with a 401(k), which often requires a judge to sign off on a QDRO, a Qualified Domestic Relations Order. This official document calls for the account to be split in a particular manner, whether divided by percentage or dollar amount, etc. The account manager can reject this judge signed order, so continuous communication and negotiations are often necessary.

If you think a spouse is hiding money or retirement accounts, learn about that here.

Should you have any questions about retirement accounts and divorce proceedings, please give Henderson & Henderson a call at 843-212-3188. You can also visit the firm’s website for more information about family law: HHLawSC.com.

Note that this is distinct from my law practice. If you are searching for personalized legal advice for your business in South Carolina, please contact me, Wesley Henderson, directly at wesley@hhlawsc.com or check out our firm’s website for more information.

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