Retirement accounts exist to provide for you when your career end or is drastically altered. They are some of the most important assets a person can have in North Carolina, and so, when facing a divorce, chances are good that they will be one of the first places you and your spouse will lock horns.
Divorce laws in North Carolina
In North Carolina, the law categorizes property married couples own as either separate or marital. Separate property is anything that either spouse owned before the marriage or inherited. Marital property, on the other hand, is anything acquired during the marriage.
Retirement earnings or investments that you or your spouse made after marriage are generally considered marital property in North Carolina. This means that they will be subject to division in a divorce.
Regarding asset division, the state uses the equitable distribution method to split marital property. In other words, the court will attempt to divide the assets in a fair and equitable manner, taking into account several factors, including each spouse’s income, earning potential, age, health and contribution to the marriage.
Dividing retirement assets in divorce
In North Carolina, there are two main types of retirement plans – defined benefit plans and defined contribution plans. Defined benefit plans include pensions and other retirement benefits based on years of service. They include 401(k)s, 403(b)s, IRAs and other similar accounts where an individual makes contributions on an ongoing basis, and the eventual payout is based on the account balance. To divide these assets fairly, the court will typically award each spouse a percentage of the benefits that will become payable during the years of his or her retirement.
Dividing a defined contribution plan is much simpler, as the account balance can be easily divided between the two spouses. However, there are still some things to consider. For example, if the court awards one spouse the entire account balance, he or she may be responsible for paying any taxes and penalties that come with withdrawing the funds early. Alternatively, the court may order that the account be split into two separate accounts so that each spouse can manage his or her own funds.
Dividing retirement assets in a divorce can seem like a complex process, but couples can navigate it successfully. Understanding your rights during the process is important because it can help you fight for what you are rightfully entitled to, depending on your circumstances.