Every divorce requires a division of property. The division of property can be accomplished by either a settlement approved by the court or by a decision of the court after a trial. Unlike child custody or alimony, property division cannot be revisited or modified by the court after it has been ordered. Property is instantly divided with a court order and ex-spouses genin §erally move on with their separate lives. However, the division of property includes retirement plans and pensions plans, the effects of which lasts for decades after the divorce is finalized. Below is an overview of how the court divides retirement accounts when dividing property in a divorce.
Property Division in Kansas
Kansas state law allows a court to divide all property in a divorce, not just property acquired during the marriage. Kansas uses the “equitable distribution” process for dividing property. Some states use the “community property” process where all property is split evenly (50/50) in the divorce. In equitable distribution states, like Kansas, the court will divide the property fairly, not necessarily 50/50. In deciding how to fairly divide the property, the court considers a set of ten factors in § 23-2802(c). This list of factors includes the length of the marriage, age of the parties, and other aspects of the divorce.
Since all property is up for grabs in a divorce in Kansas, courts will also consider the manner and means of acquiring property, specifically whether the property is classified as marital or non-marital. Marital property is all property acquired during the marriage; non-marital property is all other property, including property given directly to one spouse as a gift or inheritance, even if given during the marriage. When determining how to divide property, Kansas is careful to recognize the contributions of non-working spouses to marital property and assets. One spouse may forego a career to raise children or take care of the marital home, so Kansas does not punish this spouse by preventing him or her from collecting property. Therefore, Kansas divides all property, not just marital property.
Types of Retirement Accounts
It is important to know how family law treats the retirement accounts before discussing how and why retirement plans are divided in a divorce. There are generally two categories that courts divide all retirement and pension accounts into: defined-contribution plans and defined-benefit plans. For defined-contribution plans, the employee-spouse makes monthly contributions that are invested. A third-party, known as a trustee, traditionally controls these investments. These plans have the potential to produce a large amount of money over time, but the amount that will be paid is completely fluid. The spouses will have an estimation and hopes of what the account will produce, but the amount will remain uncertain until the time for payment. Common examples of these types of plans are profit-sharing plans such as 401(k)s, money-purchase plans, and stock-bonus plans.
Defined-benefit plans are a more conservative type of retirement plan because the amount to be paid out is known from the onset. There is none of the gamble that comes with a defined-contribution plan. The defined-benefit plan is paid out as a monthly benefit to the employee-spouse from retirement until death. The amount of the monthly benefit is based upon a set formula. These plans are generally accomplished using a life annuity for the employee-spouse, but some companies may offer a one-time lump-sum payment instead of monthly payments or even a survivorship option for the spouse. Rather than being based on monthly contributions by the employee-spouse, these plans generally only require service time.
Dividing Retirement Accounts
A retirement account can be divided in a divorce even if it was started before a marriage and solely contributed to by one spouse. While these factors may affect how the retirement accounts are divided, it is rare that the court will not grant some degree of interest in the future benefits to both spouses. The court cannot simply split the account, so dividing a retirement account may seem difficult. However, the court is able to use a Qualified Domestic Relations Order to assign benefits to the nonemployee-spouse. This order is required if the retirement plan is defined as a “qualified retirement plan” for federal tax purposes. Generally, this includes both benefit-defined and contribution-defined plans. If the plan does not fall into the qualified retirement plan category, then a Domestic Relations Order is used instead. Once either one of these orders is in place, the benefits are transferred to a new account and held for the nonemployee-spouse.
The court must know the value of the plan, so it can fairly divide the interest and potential benefits of the plan between the spouses. Therefore, each spouse is required to submit an alleged value of the retirement account to the court. However, this is difficult to do with contribution-defined plans since these plans are a gamble by nature. The court can use several methods and tools to predict the value to the best of its ability, but if the court is wrong, there is no available remedy. If the court assigns a value that ends up being too great or too small, the spouses will have to live with the consequences. Courts will not reopen a property division after a final order, so the spouses are left to the whim of the market after division.
Second only to the marital home, retirement accounts are often one of the largest assets to be divided in a divorce. Dividing these accounts can quickly turn aggressive and difficult since they are valuable. An experienced attorney is better equipped and prepared to navigate the complexity of dividing retirement accounts. Experienced counsel is a valuable investment when dealing with division of retirement accounts because a fair division will ensure that spouses are not required to restart their retirement savings following the divorce.