In North Carolina, a divorcing couple must divide their marital property, including retirement accounts or assets. However, dividing retirement assets can involve particular legal procedures to avoid serious financial or tax consequences, making it critical for spouses to have experienced legal counsel when negotiating or litigating the division of retirement benefits during a divorce.
Overview of Equitable Distribution in North Carolina
North Carolina follows an equitable distribution system for dividing marital property in divorce. Under North Carolina’s equitable distribution rules, a court called upon to divide a divorcing couple’s marital property starts with a presumption in favor of an equal division of property. How, it must divide the property unevenly if it determines that an equal division will not equitably or fairly divide the property between the spouses.
Some of the factors that North Carolina courts consider in determining what constitutes an equitable division of marital property for a couple include:
- The income, property, and liabilities of each party at the time of property division
- Any support obligations that either party has from a prior marriage
- The duration of the marriage, the age, and the physical and mental health of the parties
- The need of a party with primary physical custody of the parties’ children to occupy or own the marital residence and use or own its household effects
- The expectation of a separate pension, retirement, or deferred compensation
- Any equitable claim to, interest in, or contribution to the acquisition or increase in value of a marital asset, including contributions as a spouse, parent, wage earner, or homemaker
- Any contribution by one spouse to the education or career development of the other spouse
- The tax consequences of a division
In most cases, retirement assets or the growth in the value of a retirement asset during the marriage constitute marital property subject to division in divorce.
Dividing 401(k)s and Employer-Sponsored Retirement Plans
Dividing 401(k)s and other employer-sponsored retirement plans must occur in accordance with federal regulations and plan rules. These regulations and rules typically prohibit a traditional division of the asset, which would trigger significant tax liabilities or penalties. Instead, couples and courts divide such assets using qualified domestic relations orders, which direct plan administrators to pay the marital portion of the account’s benefits (as determined by the parties’ settlement or a court order) to a non-holder spouse.
Military Pensions and Retirement Benefits
Division of military pensions and other DoD or VA retirement benefits occurs under federal law, including the Uniformed Services Former Spouses’ Protection Act, which authorizes North Carolina divorce courts to divide military retirement assets. The Act also authorizes the Defense Finance and Accounting Service, which pays many types of military retirement benefits, to make direct payments to a former spouse under the 10/10 rule (at least 10 years of the parties’ marriage overlapped with at least 10 years of the veteran’s military service). When the 10/10 rule does not apply, the veteran must pay their former spouse directly. Federal law also allows North Carolina courts to divide Thrift Savings Plans similar to 401(k)s with a Retirement Benefits Court Order.
IRAs, Roth IRAs, and Other Retirement Assets
Most types of IRAs and other retirement assets do not require a QDRO or other specialized court order to effect a division of the marital portion of the asset. However, plans may offer the option of transferring a spouse’s portion of the account to their existing account or a new IRA, which can avoid taxes. Distributing account funds directly to a spouse may trigger tax liabilities and penalties.
Contact a Divorce Attorney Today
When you and your spouse get divorced while owning various retirement assets, understanding how divorce laws govern the division of those assets can help you protect your financial interests. Contact Greene Wilson Styron & Thomas (Summit Law Group) today for a confidential consultation with a divorce lawyer to learn more about how North Carolina law divides retirement assets like 401(k)s, individual retirement accounts, pensions, or military retirement benefits.