Property division (along with child custody) is one of the most contentious issues in a Missouri divorce. In general, all property involved in marriage is divided into marital property and non marital property. Marital property is that property which is acquired during the marriage, and Missouri law considers marital property as belonging to both spouses. Under Missouri’s law of equitable distribution, upon divorce, marital property will be divided “equitably” but not necessarily equally between the divorcing spouses. In essence, equitably means fairly, and factors such as one’s ability to earn income and each spouse's behavior (think abuse or infidelity) during the marriage can come into play in determining property division in Missouri. Non-marital property is typically property acquired prior to the marriage (or by gift or inheritance) and is generally awarded to the party it belongs in the event of a divorce.
When it comes to retirement accounts and pensions, the law of equitable distribution applies as well.
What happens to retirement plans in a divorce in Missouri?
Asset division in Missouri is guided by the doctrine of equitable distribution. Because Missouri is an equitable distribution state, assets acquired during the marriage are divided between the spouses in an equitable “fair” manner, but not necessarily in an equal manner.
The equitable distribution of assets includes not only cars and real estate, it also includes retirement funds. This may include 401(k)accounts, 403(b)accounts, Traditional IRA’s, Simple IRA’s, Roth IRAs, Septa (simplified employee pension) IRAs, Pension accounts (with a few rare exceptions), and life insurance. It’s important you protect what you have worked your entire life for by consulting with an experienced Missouri family law attorney.
Types of retirement accounts involved in divorces:
Roth IRAs, SEP IRAs, and Traditional IRAs
A traditional individual retirement account (IRA) is the oldest and most common type of IRA (individual retirement account). An IRA is a retirement investment product established at an investment company or brokerage firm, which permits an individual to build a retirement nest egg by placing funds into the the account for retirement. The primary advantage of the IRA account versus a normal savings or investment account is that the contributions to the traditonal IRA account are tax deductible. Additionally, you do not pay taxes on any increases in the account value until you make a withdrawal. At the time you access the funds in retirement and begin to withdraw from the traditional IRA, any increase in value in the account is subject to income tax based on the amount of the withdraw.
In a Sep IRA (simplified employee pension IRA) individuals who are self employed voluntarily contribute to their own retirement accounts. Much like a traditional IRA, when account owners access these funds in retirement, any increase in value of these accounts in fully taxable. Of course the idea with these types of accounts is that when you retire, your income will be less, putting you in a lower marginal tax bracket, and consequently you would pay less taxes on the investment gains than you would have when you were working earning a larger salary.
In contrast, the newer Roth IRA is taxed differently. Although Roth IRA contributions are not tax deductible when they are made (as with the traditional and Sep IRA) none of the increase in value is taxable and neither are any of the distributions when you make the withdrawals in retirement. This means all of the investment income earned is simply tax-free. Quite a deal! In the event the funds in a Roth IRA need to be divided in a divorce, the money in a Roth IRA can be transferred between spouses with no tax penalties.
Pensions
Pensions are a wonderful type of retirement plan which pay beneficiaries a certain amount of money every year until they die. During the 1950s, 60s and 70s, employees often worked at a company their entire career and were awarded with generous pensions. Times are changing however. Pensions are becoming more and more rare because people are living longer and in this increasingly competitive and global marketplace, companies simply can’t afford or refuse to offer pensions. Today most pensions exist only for government employees and union employees.
How much is paid to pensioners?
The amount of a pension involves several factors, including:
How many years the employee worked for the company or entity,
the age of the employee, and
how much money the employee earned from the company or the employee’s earnings during their final year with the company.
The majority of pensions allow division of the account in the event of a divorce, taking into consideration the employee’s earnings during the marriage.
Teacher’s pensions: The exception
Most teacher’s pensions in Missouri are not divisible in the event of a divorce. The Missouri Supreme Court, in the early 2000s, decided that retirement funds accumulated by educators are their own assets and cannot be taken in a divorce. This is partly because educators receive these pensions instead of accumulating social security credits, so their social security retirement payments will be correspondingly less.
Employee sponsored accounts: 401(k) and 403(b)
A 401(k) is a retirement account provided by employers, wherein the employee’s own contributions to the plan are often matched equally by the employer, up to a certain amount. If an employee elects to contribute to the account, funds are taken from each of their paychecks, and these contributions are tax deductible. Usually employers will contribute “match” the same amount an employee contributes to their own account, up to a certain percentage, usually 3-5%.
403(b) plans are less common and more unique. Generally these plans are only offered to a select group of public school employees, employees of some tax-exempt organizations and some members of the clergy.
In most Missouri divorces, if ordered by the court, 401(k)s and 403(b)s accounts are considered marital assets and will be divided based on the funds accumulated during the marriage. Often, instead of withdrawing the funds from the account during a divorce, the spouse owning the account will simply pay the other spouse an amount equal to their share of the account. In many cases, spouses agree to these "buy outs" because most of these accounts will charge early withdrawal penalties, so a negotiated buyout is often ideal to avoid these penalties.
Employee Stock Options
Employee stock options are generally only awarded by large corporations to senior management and CEOs. Stock options allow the beneficiary to purchase shares of stock in their company at a pre-agreeded upon price. Like 401 and 403 accounts, stock options are subject to early withdrawal penalties. As long as the stock options were acquired during the marriage, they are however considered marital property and subject to equitable distribution. One of the keys with stock options is the value of the options must be determined during the divorce in order for an equitable distribution to take place.
Life Insurance
Sometimes life insurance is used as a retirement resource. There are two basic types of life insurance: Term life and whole life insurance.
Term life insurance is a policy that exists for a certain number of years. If you die while the term life insurance policy is in effect your estate/trust/beneficiaries receive the benefits. If you don’t die while the policy is in effect, it expires and there is no payout. Whole life insurance is more like an investment than an insurance policy. A whole life insurance account grows in value with contributions and will pay out at one’s death no matter how long the beneficiary lives.
Qualified Domestic Relations Orders
A qualified domestic relations order (QDRO) contains directions from a court to the administrator of your retirement plan for how benefits will be divided between ex-spouses. These orders are prepared as part of a divorce judgment to finalize the division of funds in a retirement account.
QDROs are employed for many different varieties of retirement accounts.
Additionally, several methods are employed to distribute assets after filing a QDRO with the retirement plan administrator. In a qualified joint and survivor annuity, the non owner spouse gets the survivorship rights in the account. With a shared interest QDRO, both spouses receive the benefits simultaneously. In a separate interest QDRO, the non owner spouse receives benefits when they choose.
What must be included in the QDRO?
QDROs are generally created in a divorce judgment and in settlements. There are basic requirements in Missouri for QDRO's. A QDRO must contain:
1. The full name of both spouses,
2. each divorcing spouses' mailing addresses,
3. the amount or percentage each spouse will receive from the asset division,
4. the time period the QDRO order applies to, and
5. the particular retirement plan the order is applicable to.
The equitable distribution of retirement assets is of course quite important to both divorcing spouses. The division of retirement accounts in Missouri is complicated. However an experienced Missouri divorce attorney from the Men’s Center for Domestic Resolution can assure your rights and finances are protected.
Please reach out to the Men’s Center for Domestic Resolution today at (816) 287
1530 to schedule an in person or virtual consultation.
Your's truly,
Rob Davis, DDS, Attorney at Law
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