Dividing retirement benefits in a Georgia divorce can be complicated. There are many different types of retirement accounts, including an Individual Retirement Account (IRA), 401(k), pension, Thrift Savings Plan (TSP), 403(b), and annuities.
Each type of retirement account is different when it comes to figuring out if it can be divided equitably in a divorce. It’s also important to understand how a division of these assets can impact each spouse’s tax obligations.
Disclaimer: Bivek Brubaker & Prescott LLC is a family law firm in Marietta, Georgia. You should contact a certified professional accountant (CPA) for official tax guidance. The information presented here reflects general industry knowledge as well as the experiences of our clients.
The golden rule is that all assets acquired during the course of the marriage, regardless of who earned them, are subject to equitable division in a Georgia divorce. Assets acquired through inheritance are excluded. This does not mean, however, that all retirement accounts are treated equally.
The first thing to do is to determine whether the retirement plan is a qualified or non-qualified plan.
A qualified retirement plan meets the requirements to receive tax benefits that aren’t available to other types of plans. These plans may be part of an employer’s retirement benefits package, or they may be independent of an employer plan. The qualified plan may accept tax-deductible or non-deductible contributions. If the contributions are tax-deductible, then all withdrawals from the plan are taxable. If the plan contributions are non-deductible (as is the case with Roth accounts), the withdrawals are normally tax-free. Regardless, all plans allow for tax-free buildup inside the plan.
Non-qualified retirement plans fail to meet IRS guidelines for qualified retirement accounts. These plans accept only non-deductible contributions. Money is taxable to the employee when it is received; however, all money that grows inside the plan is tax-free. An example of this type of plan is an annuity. Annuity contributions are always made on an after-tax basis, and gains are taxed when they are withdrawn from the plan.
QDRO stands for Qualified Domestic Relations Orders. It is a judicial order entered as part of a divorce or legal separation that splits a retirement plan or pension plan. QDROs apply only to an employee benefit or pension plans subject to the Employee Retirement Income Security Act (ERISA). These are typically qualified plans that meet the ERISA standards as discussed above.
Examples of plans that do not meet the ERISA standards include Federal Retirement Plans, such as CSRS, FERS, TSPs, and IRAs. Some of these accounts can still be divided but will not require a QDRO.
We’re often asked if a Thrift Savings Plan (TSP) account can be divided. The answer is yes. By court order, a TSP account can be divided in a divorce, annulment, or legal separation proceeding. This division may have the following effects on your account:
It may award a specified dollar amount (or a portion of your account) as of a specific date to your current or former spouse, or to your dependents.
It will require the TSP to freeze your account, preventing you from taking any loans or withdrawals until the award is paid out or the order is otherwise resolved. However, a freeze will not prevent you from making contributions or changing your contribution allocation or investment choices. Also, you will still be required to make payments on existing loans.
When preparing to divide assets and anticipating any tax implications, you need qualified experts to assist you. The Marietta divorce attorneys at Bivek Brubaker & Prescott LLC have years of experience dealing with all types of divorce cases. You will work with one of our highly qualified partners, not a junior associate. We would be happy to speak with you to answer your questions about divorce. You can contact us or call 404-793-6530 to speak with one of our highly qualified family law attorneys.