Are Retirement Accounts Split in a South Carolina Divorce?

Some of the most common assets our divorce attorneys in Charleston see when dividing a marital estate during a divorce include retirement accounts. Many employers offer these types of accounts as an employment benefit, or couples sometimes start these accounts themselves. They offer tax benefits for those who have extra money to save. Divorcing couples are often worried that they’ll incur tax penalties when they divide these accounts, but that’s usually not the case. In this article, the family law attorneys at Futeral and Nelson explain how retirement accounts are handled by the family court in a South Carolina divorce case.

In South Carolina, Are Retirement Accounts Split in a Divorce?

If it’s a marital asset, then yes. If the retirement account started during the marriage, then it’s almost certainly a marital asset, and the spouse could be entitled to some of it, possibly even more than 50% depending on the circumstances.

If the retirement account started before the marriage, then it may be non-marital. However, any contributions made to the account during the marriage could be marital. For example, if the retirement account started before the marriage and was worth $10,000 at the time of marriage, then that $10,000 and the interest derived from it is likely non-marital. However, if the account holder contributed a total of $5,000 during the marriage so that it was worth $15,000 (exclusive of interest) at the time of filing for divorce or separate support and maintenance, then the $5,000 in contributions might be marital.

Even if some of the retirement account is non-marital, it could become marital if treated as a marital asset. For example, if the account holder adds his or her spouse’s name to the account, that can be strong evidence that it was intended to make it a marital asset.

How Do I Value the Marital Portion of a Retirement Account in South Carolina?

If the entire retirement account is marital, then we generally use the value of the asset at the time of filing the case in family court, plus passive income (interest), minus contributions that were made by the account after the filing date. If part of the account is marital, we need to determine the value at the time of marriage and at the time of filing. Ideally, we hire an expert witness in finance to determine these values. However, if neither party hires an expert, or if the value doesn’t justify the cost of hiring an expert, then rough calculations can be presented to the family court judge.

In some instances, the tax consequences for liquidating an account will be taken into effect. For example, if the court awards the house to the wife and the IRA to the husband, the husband’s only option to purchase his own house might be to liquidate the IRA. In this instance, a court might value the IRA at a lower amount, taking the tax consequences of liquidation into consideration. The family court decides these issues on a case-by-case basis.

Will My Retirement Account Be Split 50/50 in South Carolina?

Not necessarily. South Carolina does lean towards a 50/50 split of the entire marital estate, but the courts can deviate from 50/50 for a number of reasons. Factors that would lead towards a deviation of 50/50 would be a very short marriage, marital fault (such as physical abuse) by one party when one party holds significantly more non-marital assets, or whether a party will be receiving alimony from the other. Other factors may also apply, so you should consult with a family court lawyer about the facts of your particular case.

Also, the court does not split each asset necessarily. It splits the marital estate as a whole. For example, if there is a $100,000 house and a $100,000 retirement account, and the court thought a 50/50 split was appropriate, the court might give the house to one spouse and the retirement account to the other.

How Do We Sever the Retirement Account(s)?

If the account is an IRA, it is usually as simple as filling out a form that the account manager will provide you, although a QDRO can be used in some situations. If it is a 401(k), in order to avoid tax penalties, you will need to have a judge sign a Qualified Domestic Relations Order (QDRO). QDRO’s can be tricky because they are sometimes rejected by the account manager, even after being signed by a judge. The QDRO can split the account based upon a specific dollar figure, based upon a percentage at a certain date, or transfer the entire asset. When preparing a QDRO, the party receiving some or all of the account is often referred to as the “alternate payee.”

QDRO’s do not cover state and municipal retirement plans, plans pursuant to the Civil Service Retirement System, Federal Employees Retirement System, Thrift Savings Plans, certain IRA’s, or Keogh Plans.

What Does My Divorce Lawyer Need to Help Me?

Ideally, your divorce lawyer needs the statements for the history of the account. At a minimum, however, the attorney needs the statement showing the value at the time of the marriage, the statement showing the value at the time of filing, and all of the statements after filing so your lawyer can determine what increase was a result of passive income (interest) as opposed to now non-marital contributions. Your lawyer may also advise you to get a CPA or financial advisor on board to maximize these accounts for you.

If you are going through a divorce or anticipate one is on the way, contact the attorneys at Futeral & Nelson as soon as possible. In some situations, you may decide to file earlier than you were planning to so as to lock in a “filing date” with the court, which could increase your bottom line at the end of the case.

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