Christine P. Rosengreen is a family law attorney located in Kansas City, MO. Ms. Rosengreen practices in all areas of family law, including but not limited to, divorce, paternity, modification, guardianship, Guardian ad Litem and adoption. A life-long advocate for children and families, she is a Certified Family Law Mediator for the State of Missouri.
Dividing Retirement Accounts and Protecting Your Financial Future
At the end of a marriage, both spouses need to disentangle their financial futures from one another. You have likely built shared accounts, or worked with a similar strategy to save for retirement. Now, you have the job of protecting yourself for the future, while acknowledging contributions made during the marriage.
If you need assistance safeguarding your retirement savings while coming to a fair conclusion, a Kansas City divorce attorney with Joseph, Hollander & Craft may be able to help. Retirement account division can be a complex, and sometimes emotional area of family law. Working with an experienced and professional attorney can help break up the log jam and ensure that the entire financial picture is taken into account during a divorce.
Key Takeaways
- Retirement contributions made during a marriage are generally considered marital property in both Kansas and Missouri, while contributions made before marriage or after legal separation are typically treated as separate property.
- Kansas and Missouri use equitable distribution when dividing retirement assets, meaning 401(k)s, pensions, and other retirement benefits are divided fairly based on the circumstances rather than automatically split 50/50.
- Properly dividing retirement accounts may require a QDRO or another specialized court order, and careful planning can help avoid early-withdrawal penalties, unnecessary tax liability, delayed distributions, and other costly mistakes.
Are Retirement Accounts Considered Marital Property In Kansas City?
Retirement funds are typically considered marital assets in both Missouri and Kansas. The question of whether retirement accounts are marital or separate property is usually answered based on the date of contribution. In general, contributions made before the date of the marriage or after the date of legal separation are separate property. However, contributions made over the course of the marriage as well as growth due to interest can be included in a divorce judgment.
Calculating the Marital Portion and Division of Retirement Assets
Both Kansas and Missouri courts follow the principle of equitable division of assets. As equitable division states, this means that retirement assets will not necessarily be divided equally, but instead fairly. Therefore, you do not have to split the contents of your retirement plans 50/50, but the judge will ask for you to account for contributions made over the course of the marriage. Other than the length of your marriage, some factors that can influence how your accounts are divided might include:
- Whether one spouse put their career on hold during the marriage for childcare, to support a family business, care for in-laws, etc.
- The age and health of both spouses.
- Each spouse’s future earning capacity, including education and prior employment.
Property division begins by calculating the marital portion. In order to avoid overpaying your ex-spouse, your Kansas City family law attorney will divide out the value of contributions made to your accounts prior to the marriage, as well as after the date of your separation. In order to do so, you may need to provide documentation like your marriage certificate, account information, employment documentation, proof of participation in the Kansas Public Employees Retirement System, as well as proof of separate residences, if separation took place prior to filing for divorce. Your divorce attorney will also account for any additional legal rights established by pre or postnuptial agreements between spouses when calculating what is subject to division.
Dividing Retirement Accounts
Retirement accounts are divided in different ways, depending on the type of account.
401k and Defined Contribution Plans
In defined contribution plans like Roth IRAs and 401ks, the premarital balance will be deducted from the current balance. Market growth will also be separated out into premarital portions as well as postmarital, with postmarital growth subject to division. Both spouses’ 401ks are subject to division if both have been employed during the marriage.
Pensions and Defined Benefit Plans
The most common pension valuation method is using coverture. The coverture formula divides value based on the months of your marriage that took place during your ongoing employment. This creates a marital fraction of the pension plan that can be considered during a divorce.
The coverture fraction tends to assume a deferred distribution plan to your future ex-spouse, once you retire. While this is often the simplest and lowest up-front cost option, it does require some degree of continued cooperation between spouses. For this reason, some divorcing couples opt for immediate offset. In this approach, an actuary will calculate the current, lump sum value of the marital portion of a pension. Once that figure is reached, one spouse can “buy out” the other with home equity, cash, or other on-hand assets. Immediate offset is often recommended for couples who want no continued contact between the other, or with one spouse who has been out of the work force and needs a tangible settlement.
Many spouses undervalue pension benefits in a divorce, which can lead to one spouse receiving less than they should for the contributions that they made during the length of a career. Military and public pensions, such as being part of the public school retirement system, can also create complications. These details vary across Missouri vs Kansas law, making it important to account for state differences in a Kansas City divorce. For instance, while KPERS plans are considered divisible, the Missouri Public School System does not allow for division of PSRS pensions if a spouse opted to earn them in lieu of Social Security credits. You will need to work with a law firm that is experienced and established in the Kansas City metro area to avoid errors in dividing defined benefit plans.
QDROs, DBOs, DROs, and COAPs: Orders Used to Divide Retirement Accounts in Kansas City
In order to divide the funds without triggering tax penalties and complications, an attorney will draw up a legal document, usually a Qualified Domestic Relations Order (QDRO) for employees in the private sector. This must be approved by the plan administrator as well as the court. Mistakes in a QDRO can lead to delayed distributions, additional costs, tax liability, and rejected orders. Other considerations include what kind of retirement accounts you and your spouse hold. Depending on your specifics, you may need a Division of Benefits Order (DBO) for Missouri public plans, a Domestic Relations Order (DRO) for Kansas public plans, and a Court Order Acceptable for Processing (COAP) for federal plans. Kansas City divorces are relatively unique in that all of these orders can come into play in one marriage, for two spouses who work across state lines or one spouse who is an employee within a different state pension system.
Tax Implications and Planning for Your Financial Future
Early withdrawal from retirement accounts can trigger serious tax consequences and costs. Early withdrawal penalties make a divorce much more expensive than it needs to be in Kansas City. You can face up to 10% IRS early withdrawal penalty, being pushed into a much higher tax bracket the same year as you first file singly, and even court sanctions if a family law judge believes you are attempting to remove or hide retirement assets.
One of the most important parts of a divorce is accounting for your own financial future. This can be a mindset shift for some former spouses who are used to filing jointly and receiving all of the legal benefits of marriage. Joseph, Hollander & Craft will take the time to address these concerns and ensure that your divorce fully accounts for not only your ex-spouse’s demands, but also your own needs. Our Kansas City divorce attorneys are skilled legal advocates who prioritize protecting your privacy, financial information, and interests.
Negotiation Strategies for Dividing Retirement Assets
There may be options on the table to negotiate with a former spouse that a divorce attorney can help you find. Dividing property can also look like:
- Offsetting other assets instead of splitting accounts: For instance, in lieu of splitting a 401(k), one spouse might keep the family home, part of a valuable collection, or other assets. High asset divorces often are able to find swifter compromises than retirement account division, since there are more options immediately available for negotiation.
- Rolling distributions into recipient IRAs when possible: Rollovers are simplified options that sidestep the need for a formal QDRO. However, only IRAs, not 401(k)s, are eligible for rollover distributions.
- Modeling long-term retirement income outcomes: A marriage is a long-term investment in a shared future. During a divorce, your attorney can account for these predictions when calculating your settlement. For instance, spousal maintenance payments are one area with more flexibility in negotiations than dividing a 401(k). Additionally, there are other considerations such as the federal Social Security 10 year rule that can adjust your financial picture.
How Our Kansas City Divorce Attorneys Can Help With Dividing Retirement Accounts
Joseph, Hollander & Craft has a proven track record of professionalism and results in the Kansas City metro area. We offer hands-on, compassionate assistance for Kansas City residents who need help with divorce and planning for their own financial futures. If you need help from a Kansas City divorce lawyer, contact us today to get started.
