Two new laws went into effect January 1, 2018, which will affect divorce litigation. The Alabama legislature sought in these new laws to more precisely direct certain practices within Alabama courts: one dealing with equitable division of retirement accounts and the second, dealing with alimony. I have broken the discussion into two posts; today, I will discuss the changes to the law concerning retirement accounts in divorce litigation.
During my initial consultation with a client about divorce, I detail each of the main categories or issues which must be addressed by the court in a divorce case. Those categories can be broken down broadly as follows:
Legal and Physical Child Custody, if there are minor children, of course.
Visitation Rights, if there are minor children.
Child Support, if there are minor children.
Determination and Equitable Division of Marital Assets
Determination and Equitable Division of Marital Debts
Discussion about retirement accounts falls into the determination and equitable division of marital assets. Generally, Alabama law requires a divorce court to first determine what are the marital assets, as distinct from separate property of the parties. “Marital property” is simply anything owned by the husband or wife which has been used for the benefit of the marriage. It does not matter whose name is on the title.
Alabama law requires the judge to then equitably divide all the marital property. A division of marital property in a divorce case does not have to be equal, only equitable (or fair) considering the facts of the case. When deciding what is a fair division of marital property, a judge considers several things: the length of the marriage; the age and health of the parties; the future prospects of the parties; the source, type, and value of the property; the standard of living to which the parties have become accustomed during the marriage; and the fault of the parties contributing to the breakup of the marriage. See Golden v. Golden, 681 So. 2d 605.
So aren’t retirement accounts treated as marital property? This has been a tricky question in Alabama cases, especially regarding military retirement accounts. Until 1993, retirement benefits could not even be considered for ordering property division or alimony. “Alabama was the last state in the country to recognize retirement plans and pensions as marital property.” Family Law in Alabama: Practice and Procedure In 1993, however, Congress passed federal legislation addressing military retirement. And in 1996, the Alabama legislature made its statutory entry into the area; that law was effectively unchanged until January 1, 2018.
Under the old law, retirement accounts were to be divided only if the parties had been married for 10 years. Also, the court could not consider amounts funding those accounts from before the marriage. Retirement accounts could not be divided even if used for the benefit of the marriage. See Smith vs. Smith, 964 So.2d 663.
So what has changed on January 1, 2018?
Now, the judge may not consider any property acquired prior to the marriage or by inheritance or gift unless the judge also finds from the evidence that the property (including retirement accounts), or income produced by the property, had been used regularly for the common benefit of their marriage. The new law also now expressly states that marital property includes any interest, acquired, received, accumulated or earned during the marriage in any retirement account.
This new law also eliminates the requirement that the parties must be married for 10 years before the court may award retirement benefits. For the new statute, I think this actually may be the most critical practical change.
The revised statute also expands or clarifies the definition of retirement accounts to include not just retirement plans or accounts, but pensions, profit-sharing plans, savings plans, annuities, or similar benefit plans from any type of employment including self-employment, public or private employment, and military employment.
Lastly, the new statute also expresses that post-divorce passive increase or decrease in the value of retirement benefits shall borne by the parties on a pro rata basis.
(On a side note, if your divorce includes retirement accounts, make sure you include a “qualified domestic relations orders” (Q.D.R.O.) The Q.D.R.O. does nothing more than implement the division of property as stated in the divorce order for third party ERISA managers.)