What Happens to Retirement Accounts In a Divorce?
- Captain Ed Bradford
- Dec 4
- 4 min read
Updated: Dec 5
Dividing retirement accounts during a divorce in Florida can be complex. Many people do not realize that not all retirement funds are treated the same under the law. Understanding what counts as marital property versus non-marital property is key to a fair division. This post explains how Florida courts handle retirement accounts in divorce, how the marital portion is divided, and the tools used to split these assets without physically dividing each account. We will also look at tax implications and practical examples to help you navigate this important part of divorce proceedings.
Disclaimer: This post is provided for general informational purposes only and does not constitute legal advice. The information contained herein is a broad overview and does not apply to your specific situation. Reading this post does not create an attorney-client relationship. You should consult with a qualified attorney in your jurisdiction for advice regarding your individual circumstances.
What Counts as Marital vs Non-Marital Retirement Assets in Florida
Florida follows the principle of equitable distribution, which means marital assets are divided fairly but not necessarily equally. Retirement accounts are often one of the most valuable assets in a divorce, so it is important to know which parts belong to the marriage and which do not.
Marital Retirement Assets
These include contributions and earnings made during the marriage. For example, if both parties contributed to a 401(k) or pension plan while married, that portion is considered marital property.
Non-Marital Retirement Assets
These are funds accumulated before the marriage or after separation. If one spouse had a retirement account before the marriage or inherited money that was kept separate, those funds are usually non-marital.
How to Determine the Marital Portion
The key step is to calculate the value of the retirement account at the date of marriage, at the date of separation or divorce filing, and currently. The increase in value during the marriage is generally marital property.
Example:
Account value at marriage: $50,000
Account value at separation or current value: $150,000
Marital portion: $100,000 (the increase during the marriage). Only this $100,000 is subject to division.
Dividing the Marital Portion of Retirement Accounts
Florida law requires a fair split of marital assets, which often means a 50/50 division of the marital portion of retirement accounts. However, the accounts themselves are not physically divided into two separate accounts. Instead, courts use specific methods to allocate the value.
Qualified Domestic Relations Order (QDRO)
A QDRO is a legal order that allows a retirement plan to pay a portion of the benefits to the non-employee spouse without penalties or taxes at the time of transfer.
It applies to employer-sponsored plans like 401(k)s and pensions.
The QDRO specifies the amount or percentage awarded to the non-employee spouse.
The non-employee spouse can receive payments directly or roll over the funds into their own retirement account.
Using Credits or Offsets
Sometimes, dividing the retirement account through a QDRO is not practical or desired. Instead, the court may award the non-employee spouse other assets of equivalent value to offset the retirement account’s marital portion.
General Example:
Spouse A has a marital portion of $80,000 in a 401(k).
Spouse B receives a house or other property valued at $80,000 instead of a QDRO.
This method avoids splitting the retirement account but requires careful valuation and consideration of tax consequences. A tax professional should assist in this analysis to determine exact values.
Implications of Dividing Retirement Accounts
It is important to consult with a financial advisor or tax professional to understand the full impact of how tax implications should be considered during a divorce. Dividing retirement accounts in divorce has tax consequences that both parties must understand. Generally:
Transfers under a QDRO are not taxable events. QDROs are used so that the non-employee spouse can receive their share without immediate tax penalties to either party.
Withdrawals after transfer may be taxable. When the non-employee spouse withdraws funds, taxes and possible early withdrawal penalties may apply.
Offsetting with other assets may have tax effects. For example, receiving a house instead of retirement funds could trigger capital gains tax or affect mortgage obligations.
Practical Steps for Handling Retirement Accounts in Florida Divorce
Gather Documentation
Collect statements for all retirement accounts, including 401(k)s, IRAs, pensions, and other plans. Note the value at the date of marriage, the date of filing, and the current value. Pension benefits and other retirement benefits without an exact number should be valued by a specialized valuator.
Identify Marital vs Non-Marital Portions
Work with your attorney, financial expert, and tax advisor to determine what part of each account is marital property and any relevant tax implications in different scenarios.
Plan for Taxes
Understand when taxes will be due and how to minimize penalties.
Decide on Division Method
Choose between using a QDRO to split accounts or offsetting with other assets. Consider the complexity, costs, and tax implications.
Draft and Submit QDROs
If using QDROs, have them prepared carefully to comply with plan rules and Florida law. Hire a qualified QDRO specialist to ensure the documents are prepared correctly.
Final Thoughts on Retirement Accounts in Florida Divorce
Dividing retirement accounts fairly requires understanding what is marital property and using the right tools to split the value. Florida law supports a 50/50 division of the marital portion, but the accounts themselves are not physically split. QDROs and asset offsets provide flexible ways to divide retirement funds while managing tax consequences.
If you are facing divorce in Florida, work with experienced legal, financial, and tax professionals to protect your retirement assets. Careful planning now can help secure your financial future after divorce.
