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Retirement Accounts and Equitable Division in Connecticut Divorce
When many couples think about divorce, they are primarily concerned with dissolving their marriage. This involves resolving child custody and support issues and dividing up the marital assets. In terms of marital assets, we tend to think of things like real estate, business interests, stocks and bonds, and liquid savings. But what many couples overlook is that 401ks and other retirement accounts are also subject to division upon divorce. Even less known is the fact that these accounts can be split up amongst the parties even if they were accumulated before the marriage began.
Needle | Cuda family law attorneys are experts in Connecticut divorce law and will faithfully apply our advanced knowledge to your divorce to ensure your rights are protected. We strive to ensure that you receive fair and just treatment under the law. Whether you are trying to protect your assets or are seeking an equitable distribution of what is lawfully yours, a Needle I Cuda divorce attorney will use all the tools at our disposal to see that you obtain a satisfactory outcome. Call to schedule your consultation at (203) 557-9500 or by contacting us online.
Equitable Division In Connecticut
As you may know, getting divorced can have a significant impact on your property and finances. Connecticut is known as an equitable division state. When couples decide to dissolve their marriage, the court will look to divide up all marital property in a manner that is fair (equitable) to both sides. This doesn’t mean there will be a 50/50 split, nor does it mean the spouse that was wronged will end up with the lion’s share of the assets and property.
Factors That Determine What Is Equitable?
- The duration of the marriage
- The age and health of the spouses
- The contributions both spouses made to the marriage
- The ability of either spouse to support themselves (education, experience, training, etc.)
- The lifestyle during the marriage
While no one factor is dominant, judges have broad discretion in deciding how the marital assets will be distributed upon divorce. This means that a judge could decide to award a spouse alimony or sole possession of the marital home if that is determined to be the most equitable outcome.
Judges may also award a spouse property or possessions that were acquired before marriage. Connecticut is one of the few states that is considered an all-property state. This means that all property owned by the spouses is subject to distribution at divorce, regardless of when it was acquired or whose name is on the deed or title. In other words, all property is assumed to be marital property unless one party can prove otherwise. Retirement accounts are no different.
401ks And Retirement Accounts in Connecticut Divorce
Because Connecticut is an all-property state, both spouses’ retirement accounts are considered marital property. That makes them subject to distribution upon divorce. But unlike many states, Connecticut law dictates that retirement benefits can be divided in divorce regardless of when they were accumulated. This means that a 401k that one spouse contributed to before and during the marriage may be split up amongst the parties when they divorce. This is also true of pensions and other forms of retirement benefits. This is an important distinction because many people believe that property acquired before marriage is separate property. In Connecticut, this is simply not true, and judges can and will award a spouse property that the other spouse acquired before the marriage took place.
Determining The Type Of Retirement Benefit Is Crucial
There are several financial vehicles that can provide retirement benefits. Some of the more common retirement benefits are pensions, 401ks, IRAs, and other employer-sponsored plans. Determining what type of retirement benefit is at play is vital to understanding how it can be divided and distributed after a divorce. To discuss your retirement benefits in a potential divorce with an experienced Connecticut divorce lawyer, click here to schedule
Qualified Domestic Relations Orders
Broadly speaking, there are two types of retirement plans: qualified and non-qualified. A qualified retirement plan must meet the guidelines and restrictions set forth by the Employee Retirement Income Security Act (ERISA). If the plan meets ERISA’s guidelines, then it will be designated as qualified and retain certain tax advantages. Qualified plans can be divided and distributed through a qualified domestic relation order (QDRO). A QDRO exists to allow a retirement asset to be divided without suffering the penalties that typically come with withdrawing early from a retirement account. The QDRO is a court order that directs a retirement plan administrator to allocate assets from the account to spouses based on what percentage or portion the judge has determined is equitable. To be sure, a QDRO is a legal document that should only be drafted by an experienced family law attorney.
Non-Qualified Retirement Accounts
Retirement accounts that do not meet ERISA’s standards are known as non-qualified. These assets can still be divided but through different mechanisms. One of the more common forms of non-qualified retirement accounts is IRAs. These assets can also be divided without incurring burdensome tax liabilities and penalties. IRA division is usually accomplished through a transfer incident, which serves the same function as a QDRO but does not involve a court order. The spouses can legally request a transfer from the IRA custodian without involving the court. The assets will then be divided, and each party will be responsible for their tax liability when and if they decide to withdraw the funds.
Pensions
Pensions can be qualified or non-qualified. When dealing with non-qualified pensions, a QDRO will not be applicable. Incident transfers are also not an option. One possible method for division of a non-qualified pension is through one spouse’s buyout of the other’s interest in the asset. Another option is a sharing of the distribution when the pensions vests and are eligible for distribution. Discuss your possible options with an experienced member of our divorce team by calling (203) 557-9500.
Prenuptial Agreements and Distribution of Retirement Accounts in Connecticut Divorce
Connecticut, like many other states, allows for the use of prenuptial agreements. A prenuptial agreement (prenup) is a written contract between spouses made before the marriage. This document typically describes which assets will be eligible and in what manner if the spouses divorce. Still, not all prenups are valid, and the law requires that they meet certain requirements before they are enforced by the court.
Retirement accounts, like most other forms of property, can be excluded from property division through a valid prenup. Still, a judge may have the ability to override the prenup if they believe fairness demands it or if they determine that one or all of the prenup validity requirements were not met. For instance, if one spouse was not provided full and fair financial information prior to signing the prenup, then any terms of the contract could be rendered invalid.
“Equitable Distribution” of Retirement Accounts And Plans in Connecticut
Even though retirement benefits are technically subject to division at divorce, there are ways to protect the asset and achieve a fair division of marital property through other means. This typically means that the spouse with the retirement account may have to offset that by providing a lump sum payment or taking a smaller share of a different marital asset. By relinquishing a claim to the marital home or through a series of alimony payments, a fair and equitable division could be accomplished that allows the spouse that accumulated the retirement benefit to retain full ownership rights.
Spouses that both have retirement accounts may offset each other and negate the need or division. Still, unless there is an agreement amongst the parties or a valid prenuptial agreement, a judge will be the deciding force on whether a retirement account will be divided and how it will be done.
Connecticut Divorce Lawyers
At Needle I Cuda, we understand how important receiving a fair and equitable divorce settlement is to our clients. No one wants to feel cheated or taken advantage of at the close of their divorce. That is why our divorce lawyers do everything we can to protect our clients’ assets and see that they receive everything they are entitled to under the law. We promise to give your case the attention, care, and vigor that it needs to place you in the best position to receive a favorable result. In every case, we provide highly responsive service and attentive representation centered on a positive outcome.
Learn more about how Needle I Cuda divorce lawyers can help you in a Connecticut divorce.
Frequently Asked Questions (and Answers) about asset and property division in Connecticut divorce
What is equitable property division in Connecticut divorce?
Equitable property division is the "fair" distribution of property owned by both spouses—either marital or separate—in the event of a divorce as determined by the court. The critical term is fair concerning equitable property division proceedings. As discussed above, what the court deems "fair" in equitable property division is rarely equal. Connecticut is an all-property state, meaning that all types of property are considered when the court makes its findings. It is important to know the difference between the types of property to be divided.
Is equitable distribution the same as 50/50?
While a divorce decree could result in a 50/50 split on all marital property, in practice, that rarely happens. In Connecticut, equitable distribution means that the court will consider various factors when they decide how the marital property will be divided. This could result in one spouse receiving the lion's share of the property to balance an inequity in earning power or to provide a financially dependent spouse with the means to become self-sufficient.
What is separate property in Connecticut divorce?
Separate property is any property owned solely by one spouse, such as property acquired before the marriage, gifts, or inheritances. In most equitable division jurisdictions, separate property would be excluded from the court's distribution discretion because property established to belong to one person should remain with that person. However, because Connecticut is an all-property state for the purposes of divorce, even the property which has been proven to be owned or under the control of only one spouse is still subject to distribution. This includes exotic property like art, cars, and other unique or custom items.
What it marital property in Connecticut divorce?
Marital property is property obtained by either party while married. This property can include items like cars, houses, or other financial assets acquired while you and your spouse are married. Even assets like retirement funds can be distributed in divorce to the extent that those funds were added to the account while married.
Will I lose my 401(k) in a divorce?
It is unlikely that any spouse will be left without any interest in their 401k at divorce. But because retirement accounts are eligible for "Equitable Distribution" in a divorce, it is possible that a spouse could be forced to part with a portion.
What can I do if I don't know anything about my spouse's retirement accounts?
Through the discovery process, your lawyer can demand that your spouse provide all relevant financial information. This may include whether they have a retirement account and which institution services it. Spouses that seek to hide assets may be sanctioned by the court.
How do I know my prenuptial agreement is enforceable?
For a prenup to be valid in Connecticut, it must meet several requirements. The judge handling your divorce will be responsible for determining the validity of a prenup. However, the divorce attorneys at Needle I Cuda know the law surrounding prenups and will be your best resource in evaluating the potential validity of any prenuptial agreement.
Does the court favor the wife when deciding who gets the house?
The law in Connecticut does not favor either spouse. A judge deciding who gets the house is bound to follow the law. They are not permitted to favor either spouse when determining what is equitable. Still, a spouse that was the primary caretaker for the children during the marriage can argue that when considering all of the factors, they should remain in the marital home. Spouses must remember that that will not be the only factor considered by the court.
I have been given primary custody. Will I get to keep the house?
The court may award the marital home to the spouse that is awarded primary physical custody. Still, primary custody is defined as having the children more than 50% of the time. In other words, having primary custody is different from sole physical custody, which would mean one spouse has the children all of the time. In a sole physical custody situation, the spouse caring for the children full-time may be likely to get to remain in the marital home.
Can my spouse and I sell our home (the martial residence)?
Yes, but not unless an order from the court has been obtained or you and your spouse agree that it is best to sell the home--and the sale of your house is incorporated into your final (court ordered) divorce decree. Clearly, before agreeing as impactful as this, you will want to consult with a divorce attorney before any agreement is finalized. Issues surrounding taxes, title, the mortgage, possible liens, and how the proceeds of the sale will be allocated will need to be sorted before a sale is effectuated.
When we were married, my spouse moved into the home I owned. Will I be able to keep in in the divorce?
It depends. In short, all property, no matter when it was acquired and by whom, can be divided and distributed upon divorce in Connecticut. This can potentially include a property one spouse owned in full before the marriage. While you may be permitted to argue that certain property should be excluded from the marital estate, the law in Connecticut does allow for equitable distribution of all property of both spouses.
Who will get the marital house in the divorce?
Who will get the marital home after the divorce depends on several factors. If there is an agreement between the spouses on what will happen to the marital home, then that likely will be the result. For divorces where there is no agreement, a judge will decide based on the "Equitable Distribution" factors that must be considered by statute . If there are children involved who are currently living in the home, that may also have a bearing on who will get the home.
Can I lose my business in divorce?
While it is rare that a spouse will lose all interest in a business due to a divorce, the business may need to be sold. Still, when this happens, the proceeds from the sale will be distributed between the parties. It is unlikely a business asset will be sold with only one spouse receiving all of the proceeds.
How is the value of the business determined?
How much the business is worth can be determined through the use of business valuation experts. These professions will look at the business's data and draft reports that will tend to show what the business is worth. Another method is comparing the sale prices of similar businesses within the same industry.
I don't know anything about my spouse's business. How can I obtain information about his business? What can I do?
Through a process known as discovery, your lawyer will be able to request all relevant information concerning the business and its financial health. Valuation experts can then analyze that info to paint a picture of the business asset's worth and projected outlook. Once a value is determined, the business asset or the value assigned to the business asset may then be distributed by the court upon divorce.
When we were married, my spouse moved into the home I owned. Will I be able to keep in in the divorce?
It depends. In short, all property, no matter when it was acquired and by whom, can be divided and distributed upon divorce in Connecticut. This can potentially include a property one spouse owned in full before the marriage. While you may be permitted to argue that certain property should be excluded from the marital estate, the law in Connecticut does allow for equitable distribution of all property of both spouses.
Attorney Melissa Needle is a lifetime resident of Connecticut. She was born in New Haven and raised in Fairfield. Her family has deep roots in Connecticut and she is a third-generation attorney. Since her admission to the bar in 1990, Ms. Needle has practiced matrimonial law exclusively.
Telephone No.(203) 557-9500
