Dividing Defined Contribution Plans and Defined Benefit Plans in a Florida Divorce
Some of the most difficult assets to divide in a Florida divorce case are retirement accounts, and yet retirement accounts often are the bulk of what needs to be divided between parties in a Florida divorce. Two of the most common types of retirement accounts are defined contribution and defined benefit plans.
Florida law (Fla. Stat. § 61.075) directs courts to equitably divide all assets acquired by the parties during the marriage. It is important to note that this means only the portion of a retirement account accrued during the marriage is subject to division between the parties. When effectuating division of a retirement account after property is divided, there are different procedures to follow depending on the type of account.
Dividing Defined Contribution Plans
Defined contribution plans are one of the most common types of retirement accounts divided during a divorce. A defined contribution plan may be opened by an individual but is more commonly provided through an employer. A defined contribution plan does not guarantee a certain amount upon retirement, but permits individuals to save money in a tax deferred account. Common examples of defined contribution plans include 401(k) plans and Individual Retirement Accounts (IRAs).
When dividing a defined contribution plan, the account balance at the time of the parties’ divorce is typically multiplied by a percentage representing how much of the account has vested at that time. That amount is then divided equitably between parties. As an example, imagine Husband has a defined contribution plan that fully vests once has has worked for his employer for twenty years. After working for ten years, Husband and Wife decide to get divorce. At the time of the divorce, Husband’s plan is worth $80,000. Here, the plan’s value ($80,000) would likely be multiplied by the percentage that the plan is vested (in this example, 50%) to determine its present value. Therefore, $40,000 would be equitably divided between the parties.
A spouse receiving funds from an IRA pursuant to a divorce should roll these funds into a qualified IRA within 60 days of entry of the judgment to avoid being taxed or penalized.
In contrast, a 401(k) likely needs to be divided pursuant to a court order known as a Qualified Domestic Relations Order (“QDRO”) that specifies the portion an ex-spouse is supposed to get pursuant to a final divorce judgment. It is important to make sure a QDRO is entered at the time of the divorce to avoid future distributions being taxed to the plan participant.
Dividing Defined Benefit Plans
Unlike a defined contribution plans, defined benefit plans (commonly known as pensions) promises the account holder a set amount of money upon retirement. An account holder can elect to either receive this set amount in the form of a one-time lump sum payment or over a specified period of time.
When dividing a defined benefit plan, the non-account-holder spouse may either elect to receive payments at the time the account-holder spouse retires, or may elect to get a lump-sum payment. In many cases, QDROs are also entered to divide pension rights between spouses after a final divorce judgment is entered.
Contact an Experienced Winter Park Family Law Attorney Today
Negotiating a fair and equitable property division can prove difficult, particularly when it comes to dividing retirement accounts. If you are going through a divorce in Winter Park, you should contact the experienced attorneys at Cotter & Zelman, P.A. to help you understand how to divide any retirement accounts you and your spouse hold. Contact us today for a free initial consultation.