Keeping Property Separate

• When one spouse begins a 401(k) account in Arizona after marriage, then the proceeds of the account are subject to equal division upon divorce. However, if one spouse began the 401(k) account before marriage, then the portion of the account before the marriage may remain separate while the post-marital earnings are jointly owned. Under the Arizona community property distribution laws, as long as assets acquired before the marriage were not commingled into marital accounts, then investment account earnings up to the marriage can retain separate ownership.
  
  

Dividing Retirement Accounts

• Since many 401(k) accounts are part separate and part community in community property states, Arizona courts may require divorcing spouses enter into a Qualified Domestic Relations Order. The order allows subsequent distribution of the property or allows immediate distribution without incurring pre-retirement age penalties. The Qualified Domestic Relations Order allows the parties and retirement account manager with a method of valuation to determine the amount of funds subject to division. The premarital portion of the 401(k) account remains the separate property of the spouse who owns the account.
  
  

Overcoming the Legal Presumption

• If a court determines a 401(k) account is marital property, the court has the discretion to divide the account unequally. Since Arizona's courts presume marital property should be equitably divided, one spouse must convince the court that there is a compelling reason to award her with a larger share of the account. For instance, if she proves her husband excessively wasted marital assets during the marriage or separation, then a court may consider that to be a compelling reason against an equal division.
  
  

Qualified Domestic Relations Orders

• The Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 are federal laws that govern the treatment of retirement accounts. According to the federal laws, courts must use qualified domestic relations orders or other legally valid instruments to assign interests to retirement accounts. All legal interests must be assigned using specific language to become legally valid. Attorneys drafting qualified domestic relations orders must include the spouses' names, their respective interests, survivorship language, names of payees and altnerate payees, addresses, the names of the retirement plans, method of payment and values and retirement fund manager information.
  
  

Considerations

• Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your jurisdiction.