Introduction
Divorce can be a difficult and confusing time for couples, especially when it comes to dividing assets such as retirement benefits. In Wisconsin, retirement benefits, including 401(k)s, IRAs, and pensions, are considered marital property and are subject to division during divorce proceedings. This article will provide an overview of Wisconsin divorce laws regarding the division of retirement benefits.
Marital Property vs. Non-Marital Property
In Wisconsin, property is categorized as either marital or non-marital. Marital property includes all assets and debts that have been acquired during the marriage, regardless of whose name is on the title. Non-marital property, on the other hand, is property that was acquired before the marriage or after the divorce, property that was inherited or received as a gift, and property that was obtained in exchange for non-marital property.
Retirement Benefits as Marital Property
Retirement benefits, including 401(k)s, IRAs, and pensions, are considered marital property in Wisconsin. This means that if the account or plan was earned or established during the marriage, it is subject to division during the divorce. However, if the account or plan was established prior to the marriage or after the divorce, it is considered non-marital property and is not subject to division.
Division of Retirement Benefits
Wisconsin law requires an equitable division of marital property, which means that property is divided fairly but not necessarily equally. When dividing retirement benefits, the court will often order a qualified domestic relations order (QDRO). A QDRO is a court order that allows a portion of retirement benefits to be paid to the non-employee spouse.
Under a QDRO, the non-employee spouse is considered an alternate payee. The QDRO will specify the amount or percentage of the benefits that the alternate payee is entitled to and the method of payment. The alternate payee can choose to receive the benefits as a lump sum or as periodic payments.
It is important to note that retirement benefits that are paid out to the non-employee spouse under a QDRO are subject to taxes and penalties. It is recommended that both parties consult with a financial advisor and/or tax professional to understand the tax implications of receiving retirement benefits.
Exceptions to Division
There are some exceptions to the division of retirement benefits during divorce proceedings. For example, if a spouse has a defined contribution plan, such as a 401(k), and the account balance is less than $5,000, the court will typically not require division. Additionally, if both parties agree to exclude retirement benefits from the marital property division, the court may honor their agreement.
Conclusion
Dividing retirement benefits during divorce proceedings can be complex and confusing, but understanding Wisconsin laws can help make the process easier. Retirement benefits acquired during the marriage are considered marital property and are subject to division. A QDRO is often used to divide retirement benefits, and taxes and penalties may apply to the non-employee spouse receiving benefits. It is recommended that both parties consult with a financial advisor and/or tax professional to understand the tax implications of dividing retirement benefits.