When a couple divorces in Tennessee, the assets and debts of a marriage are split equitably. This means that your property is not necessarily divided 50/50, but in a way that the courts deem fair to both parties. For some couples, this affects their retirement accounts, including pensions and 401(k) plans.
Generally speaking, a retirement account is considered joint marital property. This means that when a couple divorces, the money in the 401(k) can be divided between both spouses even if only one spouse contributed financially to the account because, for example, it was set up through one spouse’s place of employment. Money that had already accrued in the 401(k) before the couple got married is considered separate property, however, and would not be divided among the assets in a divorce.
When the non-owner spouse is granted a share of the retirement benefits, the court will create a Qualified Domestic Relations Order, or QDRO, so that the 401(k) administrator can pay out the money to the non-owner. QDROs ensure that both spouses obtain the money they are owed from the account in an efficient and timely manner, and help the spouses avoid any additional issues. Tennessee laws also state that money that is transferred through a QDRO is not subject to the 10% penalty for early withdrawal.
Other accounts which may be divided
Retirement accounts like 401(k)s are not the only accounts which can be divided. Under Tennessee law, the courts will also divide:
- Pensions , both vested and unvested
- Stock option rights
- Employment fringe benefits
- Checking accounts
- Savings accounts
Furthermore, any debts the couple has accrued – a mortgage, car payments, credit card balances – are also divided, though responsibility for those debts is not. Thus, a couple with a $10,000 car loan might be responsible for paying $5,000 each, but the name of the person on the loan is still responsible to the company to ensure that debt is paid.
Property division can be a complicated issue. At the Law office of LaFevor & Slaughter, we help our clients keep as much of their retirement plans and monies as possible. Please contact our office for more information.