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Retirement Plans and Divorce in Florida

As married people, you likely saved for a joint retirement. During your divorce, you must split this important asset equitably. 

Florida offers several options for splitting retirement plans in divorce. You could transfer the balance from one account to two. Doing so requires a lot of paperwork, including formal paperwork that the retirement plan administrator must approve. 

You could avoid paperwork by trading something else (like the family home) for the retirement balance owed. However, this could come with significant tax penalties. 

Here’s what you need to know as you go into the process of sorting out retirement plans in a Florida divorce.

Marital vs. nonmarital assets 

Florida recognizes two types of assets: marital and nonmarital. Retirement plans can fit into one or both categories. 

A nonmarital asset is one you bring into the marriage. If you’re retired and living on the benefits from a pre-existing retirement plan, it could be considered a nonmarital asset that’s yours when you divorce. 

A marital asset is one you purchased or added to during the marriage. If you opened the account after your wedding day, it’s likely a marital asset. And if it was opened before your marriage, but you used joint funds to build up that account during your union, that portion is a marital asset. 

What does equitable distribution mean in Florida? 

Florida laws require an equitable distribution of marital assets in divorce. This means that property is divided fairly but not necessarily in a 50/50 fashion.

Retirement accounts are specifically mentioned in Florida statutes. Rules state that vested and nonvested funds accrued during the marriage are marital assets subject to equitable distribution rules. 

In other words, any money you put into the account and any funds you earned from interest during your marriage are marital assets. Courts must determine how to split them equitably in a divorce. You might get half the amount, but the courts could approve a different arrangement, depending on a range of factors. 

Types of retirement plans in Florida divorces 

No matter what type of retirement plan you have, Florida rules in divorce are the same. But if you’ve switched jobs several times, you may have multiple accounts open simultaneously. Understanding what lawyers mean when they discuss retirement plans can help make sure you disclose everything involved in your divorce settlement and avoid trouble down the road. 

Florida Retirement System (FRS)

More than 1.1 million active, retired, and terminated members have benefits within the Florida Retirement System, or FRS. State employees comprise the bulk of beneficiaries, but some smaller organizations founded in the Sunshine State use this benefit system, too. 

Private pension plans 

Some Florida employers create their own pension plans rather than participating in FRS. These accounts may be administered by larger companies (like Fidelity), or they may work through smaller banks within the state. Paperwork from your employer should tell you where the account resides.

IRAs and 401(k)s

Some employers offer these retirement packages to staff members. They may match contributions as a form of compensation to their employees. 

Some people use these tools outside of formal employment to save money, too. Self-employed people are just some of those who might have these types of retirement programs. 

Valuing and determining an equitable split 

A retirement account is a core asset that must be split during divorce. Often, people bargain and negotiate with one another to develop a plan that both sides consider fair. 

A typical plan, such as one administered through FRS, considers a fair split for people married throughout the entirety of the account’s maintenance 50/50. If you opened the account the day after your wedding, you should split the balance right down the middle. 

But FRS documents say parties not married the entire time can use the following formula:

(Years married/years of FRS service)x50%=percentage

Percentage x member’s estimated monthly benefit at retirement 

So, if you were married for 20 years and an FRS member for 30 years, the formula-based percentage is 33%. If your estimated monthly benefit is $2,000, your partner would get $666 of it. 

Divorcing parties in Florida can use formulas like this to determine how much each party should get. But they can also consider these figures as a starting point in a discussion about equitable asset splits. You’re not required to accept your plan’s ideas about how to divide your estate. 

QDROs and Florida 

A qualified domestic relation order (QDRO) is paperwork that recognizes two people (not just one) as beneficiaries. Companies use QDROs to help divorcing people split their assets without breaking federal laws about retirement accounts. Per those laws, only one person owns retirement benefits. A QDRO can change that. 

Read: Guide to QDROs in Florida

With a properly created and approved QDRO, your retirement account company can shift a predetermined amount from one account to another. When the new account holder retires, that person can draw from the account. 

A QDRO can’t make up new rules for the beneficiary. For example, you can’t retire earlier than the plan specifies or withdraw more funds than the account contains. But a QDRO can help you keep saving for retirement based on funds you put in or earned while married. 

Your retirement plan administrator should have QDRO forms available, but you should start this process early. 

In a typical scenario, Florida families follow these steps:

  1.  They decide on an equitable retirement account split. 
  2.  They fill out a QDRO with the help of a financial expert.
  3.  They submit the draft QDRO to the retirement company for approval. 
  4.  If it’s approved, they send the document to the courts with the final divorce paperwork. 
  5.  The judge approves the plans and allows for the fund split as part of the divorce. 
  6.  The final QDRO is sent to the retirement company.
  7.  Funds are transferred. 

With so many steps, it’s easy to get delayed and sidetracked. It’s critical to start early so you have time to do everything just right. 

Read: What Happens If a QDRO Is Not Filed?

What can you do instead?

You’re not required to split your retirement accounts, fill out QDROs, and submit them. You could leave the balance right where it is and trade another asset. 

Families may opt to trade a share of the family home, sole possession of the car, or individual possession of their retirement accounts. Any asset could be traded for something else in a divorce. As long as you know what your retirement account is worth and what your partner is entitled to, it is possible to make an appropriate trade. 

Read: How to Work with a Certified Divorce Financial Analyst 

If you retain your retirement account, contact your plan administrator after your Florida divorce is finalized to change your beneficiary. Most plans won’t let you name someone other than your spouse to get your money after your death. Once you’re divorced, you can update that beneficiary information to make sure the right person gets your money in the event of death.

What about taxes?

Any decision you make during divorce could come with tax consequences. It’s important to consider them when you’re making your decisions.

If you roll funds from one retirement account into another, it’s typically nontaxable. The IRS considers these transactions similar to those made by employees. 

The two following scenarios can come with tax consequences:

  • Immediate distribution: If you ask for 401(k) funds immediately, you could face a federal bill of 20% of the withdrawal amount in addition to Florida taxes. 
  • Transfers to IRAs: If you accept funds and put them in an IRA, that transfer must happen within 60 days of receipt. Otherwise, the IRS will consider this taxable income. 

Trading for another asset could come with tax issues, too. Accepting the family home, for example, could mean footing the entire property tax bill. 

If you’re not planning a simple rollover with a QDRO, talk to a financial expert. A choice you’re considering could cost you too much money in the end, and it’s important to understand all the details of the move before making it.

At Hello Divorce, we offer a number of services, including financial planning with a certified divorce financial accountant (CDFA). This type of service may be helpful if you’re facing a divorce and wondering what to do with your retirement plan. Before scheduling time with a CDFA, we invite you to schedule a free 15-minute phone call with an account coordinator to ask any questions you may have.

References

Consumer Pamphlet: Divorce in Florida. (March 2023). The Florida Bar. 
61.076: Distribution of Retirement Plans Upon Dissolution of Marriage. Florida Legislature. 
Division of Retirement. Florida Department of Management Services. 
Divorce After 50: The Impact on Retirement Savings. (October 2023). Charles Schwab. 
Qualified Domestic Relations Order (QDRO) and the Florida Retirement System (FRS) Pension Plan. RFS Online.
QDROs: The Division of Retirement Benefits Through Qualified Domestic Relations Orders. (2020). U.S. Department of Labor, Employee Benefits Security Administration. 
Retirement Topics: Qualified Domestic Relations Order (QDRO). (August 2023). Internal Revenue Service.Gui