Traditional Retirement Accounts
401k plans, IRA and Roth IRA accounts and annuities are examples of traditional retirement accounts. These accounts are considered marital property and can be divided, except for the money earned before the marriage. These accounts are divided with the rest of the marital property even if one spouse never worked.
Defined Benefit Plan vs. Defined Contribution Plan
Retirement accounts fall into two general categories: defined benefit plans and defined contribution plans. A defined benefit plan is often called a pension, a retirement account that guarantees the account holder a certain amount of money after retiring. It can be paid on a periodic basis or in one lump sum. In defined benefit plans, the account holder’s employer usually shoulders the full cost of this sort of plan.
A defined contribution plan does not pay a specific benefit upon retirement, but allows a person to save money for retirement in a tax-deferred account. A 401k is an example of a defined contribution plan. Over time, the account holder (and sometimes an employer) makes contributions to the plan. At retirement, the account holder withdraws money from the account in order to cover living or other expenses.
Whether a particular account is a defined benefit plan or a defined contribution plan will affect how that plan’s proceeds are divided at divorce. In case of a defined benefit plan, the ex-spouse may be able to elect to receive a lump sum, “cash out” payment. In other words, the ex-spouse may be able to receive a portion or percentage of the present value of the account at the time of divorce. He or she could then spend it or reinvest it. Alternatively, the ex-spouse may elect to receive payments in the future at the time of retirement.
For defined contribution plans, typically the account balance is multiplied by a percentage of vesting for the account. This is then divided between the parties.
The division of government pensions in a Florida divorce can be tricky. This is because government pension plans (from federal, state, and local government bodies) are exempt from the Employee Retirement Income Security Act (ERISA), the law which establishes QDROs. Thus, government pension plan administrators are not necessarily required to accept QDROs, and plan administrators are not obligated to make direct payments of retirement benefits to the non-employee ex-spouse.
State and county workers in Florida are covered by the Florida Retirement System, which voluntarily accepts QDROs. Municipalities, however, are free to either accept or reject QDROs. Thus, in those cases in which a municipal retirement plan does not accept QDROs (and most municipalities in Florida do not), the non-employee spouse may wish to consider having the employee spouse’s municipal pension valued and then take some other asset of equal value. Otherwise, the parties may have to get creative in the drafting of court orders in order to ensure the non-employee spouse has access to the benefit to which he or she is entitled.
A similar situation is encountered with federal pensions. Like in the case of municipal pensions, the parties may have to be creative and precise in the way a court order is structured and worded so that the non-employee spouse is able to receive the benefits to which he or she is entitled.
Military Retirement Benefits
If a former spouse was in the military and is eligible to military retired pay, the other spouse may be eligible to receive some of it. The Uniform Services Former Spouse Protection Act allows state courts to consider a service member’s military retired pay to be considered marital property in a divorce.
When dividing military benefits, the courts follow certain guidelines: