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How a court handles retirement plans during divorce

During divorce proceedings, the court will order the marital estate to be divided between the parties equitably. When making such an order, the court will consider — with some exceptions — any money, property or interest acquired during the course of the marriage, including retirement accounts.

Basic rules for retirement accounts

Under Alabama law, all retirement plans may be considered by the court, whether it is an individual, joint or group plan and regardless of the type of employment from which the plan arose.

The amount of the retirement benefits ordered to be paid to the spouse not covered by those benefits has a limit; it cannot exceed 50% of the total benefits considered by the court. However, the parties to the divorce can agree on an amount otherwise limited by this rule.

If one spouse asserts that a retirement plan should not be considered by the court for distribution, that spouse bears the burden of proving it is not part of the marital estate. The court is not required to distribute any part of a retirement plan to the other spouse. Equitable distribution of the entire marital estate is the court’s priority; retirement plans are but one facet of the estate.

The value of a retirement benefit may passively change over time, after its distribution has been ordered. Examples of a passive change include market fluctuations and cost-of-living adjustments. If this occurs, either increasing or decreasing the benefit’s value, the change will be borne by the parties proportionally. This rule does not implicate active changes to the value of a plan, such as withdrawals or continuing contributions.

Importantly, the court cannot modify the underlying terms of a retirement plan itself – that remains within the purview of whomever actively controls the plan. The court can only make orders as to the plan’s distribution among the parties.

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