What Happens to Your Retirement Accounts During Divorce in King and Pierce Counties?

The ending of any relationship can be difficult. Whether your marriage has lasted for decades or you have only been together for one year, recognizing that going your separate ways is the only option is rarely a straightforward or simple decision. Not only are you coping with complex emotions during this challenging time, but you must also navigate each step of the divorce process. As you move through this turbulent time, it’s essential to identify sources of support, such as trusted friends and family members. Many people also find that working with a mental health therapist empowers them to face each decision more clearly and confidently. Although Washington State does not require divorcing couples to hire attorneys to complete this legal process, taking this step is highly recommended. In most cases, just knowing that you have a caring and dedicated advocate by your side can give you the strength and reassurance you need to move forward into your life’s next chapter.

As you work with your soon-to-be ex-spouse to untangle your life from the other’s, you’ll face a seemingly endless list of topics to address. Negotiations about property division, spousal maintenance, child custody (for divorcing couples that have children), and other important matters will be necessary to establish the terms of your divorce. Since thinking about all of these topics at once can be intimidating, let’s focus on how Washington State handles the division of property (and specifically, retirement accounts) so you can get a better idea of what to expect during these negotiations.

Fair and Equitable Division of Property in Washington State

Like many states, Washington is considered a “community property” state. This means that any assets that one or both spouses acquired during the course of the marriage is subject to division during the divorce. As the court determines the terms of the divorce, it seeks to establish a “fair and equitable division” of property and assets between the two parties. It’s essential to understand that “fair and equitable” does not automatically mean that the property will be split an even fifty-fifty. Rather, the court will approach this process from a holistic perspective, seeking to provide a division that supports the unique needs of each party. There is no one-size-fits-all model or calculation that applies to every case; instead, the court has a broad discretion to assess the specific details of each party’s circumstances to arrive at an outcome that supports both parties sufficiently as they begin their newly independent lives.

Separate Property vs. Community Property

As you approach the divorce or legal separation process, you may hear the terms “separate property” and “community property.” These terms are helpful to understand as they play a role in determining how your property will be divided. Essentially, any property that a spouse acquires during the marriage (i.e., a house, rental property, car, etc.) is considered community property. This means that the vehicle your spouse purchased during your marriage legally belongs to both of you, even if your spouse’s name is the only one listed on the title. In contrast, any property that you received or earned before your marriage or after your separation is considered separate property. However, the distinctions between separate and community property are not always clear-cut. For instance, if you resided with your spouse before you entered into marriage, the court may consider any property or earnings you received during that time to be community property (even though the marriage had not occurred yet). Negotiations about property division can be tense and complicated, especially for couples that share business ownership, multiple real estate properties, complex stock portfolios, and other assets that require more attention and consideration. As you approach these determinations, discuss your goals with your divorce attorney to identify the most strategic path forward.

How Retirement Accounts Factor Into the Divorce Process

As a community property state, Washington considers the earnings that each spouse acquired over the course of the marriage to be subject to fair and equitable distribution during the divorce process. Retirement accounts are no different; just like income, retirement accounts may be used to establish an equitable divorce agreement between the two parties.

First, it’s important to understand that every divorce is different, so the parties, their attorneys, and the court will assess the specific details and relevant factors of the situation to determine the most appropriate solution. For example, in a case in which each spouse has contributed a comparable amount to their individual retirement account during the course of the marriage, it may be best for each party to keep their own account moving forward. However, situations in which one spouse contributed significantly more assets to the retirement account will likely be handled differently.

Key Factors to Consider When Dividing Retirement Accounts

Establishing a fair and equitable distribution of property takes time and effort. As the court moves toward this goal, it will consider multiple factors to inform its decision. The duration of the marriage, the number of contributions made by each spouse, the age and health of each spouse, the income and earning potential of each party, the standard of living enjoyed by the spouses during the marriage, and other factors all play a role in determining the allocation of community property (including the funds in retirement accounts) during the divorce. If the couple has put a prenuptial agreement in place, the court will use this document to guide its process for dividing the property. It’s helpful to think of retirement and pension benefits, including 401(k) plans and other such benefits, as pieces of a larger puzzle that the court can use to establish a fair and equitable outcome for both parties. For instance, the court may decide that the spouse with the more robust retirement account can keep this account (but they will receive the vehicle with an underlying loan obligation), while the spouse with fewer retirement assets will retain this account and also walk away with the vehicle that has no debt. Your attorney will work with you to negotiate a fair and equitable outcome on your behalf.

How to Divide Retirement Accounts

If the court determines that it’s necessary to divide up retirement account assets, this process can be accomplished through two primary methods: The “cash-out” method and the Qualified Domestic Relations Order (QDRO) method. Under the cash-out method, one spouse receives an equivalent amount of cash or other assets in exchange for their share of the retirement account. In other situations, the court may decide to issue a QDRO that compels the retirement plan administrator to divide a retirement account between the spouses according to a specific amount or percentage. These matters can quickly become complicated as they involve multiple parties, forms, and protocols. Additionally, there may be tax implications for some of these actions, so it’s often in your best interest to consult with a tax professional before making any definitive decision or action. If you encounter obstacles or difficulties during this process, you can enlist the guidance of your attorney to help you move forward toward a resolution.

Other Types of Benefits to Address During Divorce

Retirement accounts vary widely, as do the types of benefits available to employees in different sectors. As you navigate through the divorce process, your discussions may involve a considerable array of retirement plans and funds, such as IRAs, Roth IRAs, 401(k) and 403(k) plans, Employee Retirement Income Security Act (ERISA) funds, pension plans, military pensions, employee stock options (ESOPS), and more.

If your divorce or legal separation involves complex assets, real estate properties, or business interests, it’s best to work with an experienced attorney who has a proven track record of handling more nuanced cases like yours. Now is the time to lay a strong foundation for your post-divorce life, so invest the time and energy that’s necessary to keep your future as bright as possible.

Preparing for Upcoming Negotiations About Property Division

Divorce is an inherently complicated time in a person’s life. The thought of making monumental decisions each day can be intimidating and overwhelming, especially if you have not taken the time to consider your goals. When you reach out to a trusted and compassionate Seattle attorney, you can feel lighter in knowing that you are not facing this process alone. Your attorney can work with you to identify your desired outcome. Together, you can develop a strategic path forward to secure the stable foundation you need to grow and thrive after the divorce is finalized. Whether your divorce resolves relatively quickly or the process requires a more nuanced and measured approach to obtain a fair and equitable outcome, you can trust that your lawyer will work hard to answer your questions, address your concerns, and empower you at every opportunity.

If you’re feeling overwhelmed by the divorce process, you are not alone. The dedicated and caring legal team at the Hemmat Law Group is here to support you during every step of the process. Call our Seattle office today at (206) 682-5200 to discuss your goals.