Pensions and Retirement plans are more and more important assets in long-term marriages. Many times they are the largest single financial assets owned or held by either party.
Some important considerations in this area are length of marriage and type of retirement. In most cases, in Alabama, retirement is not divisible as an asset in divorce unless the parties have been married at least 10 years. Once that threshold is met, the Court can look this asset as available for division if the estate of the other spouse is inadequate. From a practical standpoint, courts will generally add the value of retirement plans together and then give each party equal value. This will require one party to give up some of their retirement to the other. Depending upon the type of plan or account, the parties may need a Qualified Domestic Relations Order (QUADRO) to avoid any tax implications for early withdrawal.
The QUADRO is usually a separate order that directs the manager of a retirement plan to transfer retirement from the account of one party to the other party. There are numerous tax potholes and it is probably the best practice to have an accountant or other financial professional involved in drafting the QUADRO.
Because the trial court will be prohibited from modifying a property division 30 days after the entry of the final order, it is important to request that the Court issue an order retaining jurisdiction to issue further orders as needed to carry out the division of retirement.
Even before the QUADRO there could be need for the involvement of financial professionals. Calculating the present value of retirement is usually required as is the need, if some retirement accumulated prior to the marriage, to determine what part of the retirement is available for division and what is not.
Another area of difficulty in dividing this type of asset is military retirement. Because of its locality in relation to various military bases in and near Montgomery, most attorneys practicing in domestic relations will run into a case involving military retirement. Generally, a member of the military will be eligible for retirement if they have served at least 20 years. Unless they become disabled while in the service, if they leave the military before serving 20 years they get nothing.
The potential benefits available to the military spouse are tied to the relationship of length of marriage to length of service and overlap between the two. For instance, if a spouse is married to a service person for 20 years during the 20 years of military service, they are qualified to receive the maximum benefits other than a portion of the retirement pay itself. The amount of benefits and the length of time of availability are affected when the term of the marriage during service is less than 20 years.
With regard to division of retirement pay benefits, it is important to look at the character of the benefits. If the benefits are tied to a disability, they are generally indivisible. Otherwise, the state court can divide the pay and the defense department will issue separate checks to the retired member and the ex spouse. Determining the proportion of retirement pay that would go to the former spouse can be calculated by mathematical equation involving the amount of the benefit, length of service during the marriage and length of marriage.
Military retirement has only been available for division in Alabama for about 15 to 20 years. Prior to that it could not be divided as a marital asset. However, it has always been available for consideration in the calculation of support.