Divorce is a complex process that becomes even more intricate when retirement benefits enter the picture. Retirement benefits are often highly valuable assets, and during divorce proceedings, they can be divided between spouses. If you are contemplating divorce in Tennessee, and either you or your spouse possesses retirement benefits, it is crucial to familiarize yourself with some key information.
Types of Retirement Benefits
Two primary types of retirement benefits exist: defined benefit plans and defined contribution plans. Defined benefit plans constitute traditional pension plans in which the employer pays a predetermined sum to the employee upon retirement. This payment is based on a formula that factors in the employee’s years of service and salary history. Conversely, defined contribution plans involve the employee contribution of a fixed amount, which may or may not be matched by the employer. These contributed funds are then invested and can be withdrawn upon retirement.
Division of Retirement Benefits in Tennessee
Retirement benefits are classified as marital property in Tennessee and, as a result, are subject to division during divorce. However, dividing retirement benefits can be intricate, particularly in cases where the benefits are vested but not yet payable. In such instances, a Qualified Domestic Relations Order (QDRO) may be necessary to establish the division of benefits.
Qualified Domestic Relations Order (QDRO)
A QDRO is a legal order that outlines how retirement benefits will be divided between divorcing spouses. It is important to note that a QDRO is distinct from a divorce decree or settlement agreement. Instead, it is a separate court order that requires approval from the plan administrator. Compliance with specific requirements set forth by the Internal Revenue Service (IRS) and the Employee Retirement Income Security Act (ERISA) is essential for a QDRO.
Effect of QDRO on Retirement Benefits
Upon approval, a QDRO facilitates the division of retirement benefits according to its terms. This may result in one spouse receiving a lump sum payment or the distribution of benefits through other means, such as a percentage-based allocation or shared interest in the plan. The spouse who receives these benefits is responsible for any associated taxes and penalties.
Characterization of Retirement Benefits
In Tennessee, characterizing retirement benefits is a critical factor in their division during divorce proceedings. Retirement benefits accumulated during the marriage are generally considered marital property, while those acquired before marriage or after separation are deemed separate property. However, if these benefits have been commingled with marital funds, determining the precise value can be challenging.
Valuation of Retirement Benefits
Valuing retirement benefits can prove to be one of the most challenging aspects of the division process in divorce. Defined benefit plans can be evaluated by considering the plan’s formula, the employee’s years of service, and salary history. For defined contribution plans, the value is determined based on the plan’s balance at the time of divorce. In some cases, the expertise of an actuary or financial expert may be necessary to accurately assess the value of retirement benefits.
Conclusion
Divorce can be an emotionally arduous journey, especially when retirement benefits are involved. If you are undergoing a divorce in Tennessee and possess retirement benefits, it is vital to seek the guidance of an experienced family law attorney to safeguard your interests. By understanding the different types of retirement benefits, the division process, QDROs, characterization, and valuation, you can ensure the adequate protection of your retirement savings.