People contemplating divorce often have worries about the future. Those concerns often prioritize specific financial matters. In addition to worrying about the cost of divorce, spouses contemplating divorce often worry about what may happen to their most valuable assets.
Some people worry primarily about the home where they live or the business that they started during the marriage. For others, their financial stability years from now is the main concern. They may have spent much of their marriage saving for retirement. They may have a 401(k) with matching contributions made by their employer and also a Roth IRA that they fund independently to supplement their other savings.
A well-funded retirement account may rival the value of real property or a business. What typically happens to retirement accounts when couples divorce in Michigan?
The accounts may be subject to division
The uncomfortable reality for those with retirement savings is that they usually have to disclose them and may have to divide them when they divorce. Typically, spouses have to look at account history and determine how much of the balance represents deposits made during the marriage and what, if any, balance was from before the marriage or after the formal separation of the spouses.
Any marital contributions are likely subject to division under Michigan’s equitable distribution statute. The courts do not care that the account is only in the name of one spouse and that only one spouse made deposits into the account. What matters is that those deposits involved marital assets and income. Spouses may have to divide their retirement accounts or may have to factor in their value when making other decisions about how they split their property.
In some cases where direct account division is necessary, spouses can at least avoid taxes and penalties by having a lawyer draft a specialized document. With a qualified domestic relations order (QDRO), those with tax-deferred retirement savings can avoid the secondary financial consequences of taking a pre-retirement distribution from the account.
Understanding the rules that govern property division proceedings during a high-asset Michigan divorce can help people prepare themselves for divorce. Reasonable expectations may make it easier for spouses to settle or to recognize when they need to litigate to protect themselves and their financial future.