Divorce is never an easy process to go through, especially when it comes to dividing assets and retirement benefits. In this guide, we will explain the rules and regulations that govern the division of retirement benefits during a divorce in Ohio.
Understanding Ohio’s Property Division Law
Ohio is an equitable distribution state, which means that the court will divide all property acquired during the marriage in a way that is deemed fair and reasonable. This does not necessarily mean that the property will be divided equally between the two parties. The court will consider several factors such as the length of the marriage, the contributions of each party to the marriage, each party’s earning capacity, and their respective ages and health.
How Retirement Benefits Are Divided In Ohio
Retirement benefits are considered marital property in Ohio if they were earned during the marriage. Accordingly, they are subject to division during a divorce. In Ohio, there are two types of retirement benefits: defined benefit plans and defined contribution plans.
Defined Benefit Plans
A defined benefit plan provides a specific benefit amount at retirement based on a formula that takes into account the employee’s salary and years of service. These plans are typically sponsored by employers, and the benefits are paid out over the employee’s lifetime.
In Ohio, the court will typically divide a defined benefit plan by awarding a portion of the monthly benefit to each party. The exact amount will be determined based on the length of the marriage and the contributions of each party to the plan.
The court may also order the plan administrator to divide the plan by splitting the benefit into two separate accounts. This is known as a Qualified Domestic Relations Order (QDRO), which is a court order that directs a plan administrator to pay out benefits to someone other than the plan participant.
Defined Contribution Plans
A defined contribution plan is a retirement plan where the employer and/or employee makes contributions to an individual account. The benefit that will be paid out in retirement depends on how much money has been contributed to the account and the investment performance of the account.
In Ohio, defined contribution plans such as 401(k) plans and IRAs are also subject to property division during a divorce. The court will typically divide the account by awarding a percentage to each party based on their contributions to the plan.
The court may also order a QDRO to divide the account and direct the plan administrator to transfer a specific amount or percentage of the account balance to the other party.
Tax Implications
It is important to understand the tax implications of dividing retirement benefits during a divorce. If you are the recipient of a distribution from a qualified retirement plan, such as a 401(k) or a pension plan, you will be required to pay taxes on the distribution as ordinary income. If you are under the age of 59 ½, you may also be subject to an additional 10% early withdrawal penalty.
To avoid these tax implications, it is recommended that you roll over the distribution into an IRA. This will allow you to defer taxes until you begin taking distributions from the IRA.
Conclusion
Dividing retirement benefits during a divorce can be a complex and confusing process. It is important to consult with a qualified attorney who can help you navigate the legal and financial aspects of the process. By understanding the rules and regulations that govern the division of retirement benefits in Ohio, you can work towards a fair and equitable resolution that will protect your financial future.