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401(K)s and Retirement Assets are Marital Assets, Despite Who “Owns” Them

by: Nicole Taylor

Your retirement account is likely one of your largest assets. Determining what happens to these critical funds is a key issue in your divorce.

The 401(k) is probably the most powerful retirement savings tool available to individuals. The balances can be large – should be large – enough to sustain your standard of living in your retirement years. But in North Carolina, these funds are not necessarily the sole property of one spouse, despite whose name is on the account statement. Retirement funds earned during the marriage should be considered in any equitable distribution of marital property.

Throwing legal issues in with financial ones can get complicated fast; let’s start with the basics.

What is “equitable distribution” in divorce?

North Carolina is an equitable distribution state. The court will want to see a fair division of marital assets; usually this means marital property is divided equally. Throughout your divorce process, you will have opportunities to work with your spouse to decide on a who-gets-what division – but remember the court wants to see an equitable split. If you cannot agree on terms together, the court may do it for you.

What counts as “marital property”?

With limited exceptions, marital property is any property earned or acquired from the date of the marriage to the date of separation. That means that even though a retirement account might be in one spouse’s name, contributions made to the retirement account during the marriage and prior to the separation are (with very limited exceptions) marital property subject to equitable division. If the retirement account was created before the marriage, but a spouse continues to contribute to it during the marriage, then it has a mixed classification, meaning it is partly separate and partly marital property. In that instance, even though the account was owned before the marriage, the marital portion of the account can still be divided in equitable distribution.

How should we handle 401(k)s in divorce?

Occasionally courts order or parties agree that each will simply keep their respective retirement accounts, for instance when the marital portion of the accounts are similar in value. However, when a majority of the retirement assets earned during the marriage are in one party’s 401(k) account, a portion of that account is typically transferred to the other spouse (“recipient spouse”) in order to fairly distribute the marital estate.

To divide a 401(k) account, you’ll need an order (a “qualified domestic relations order,” to be specific). This order instructs the 401(k) plan’s administrator how to handle things. Three options are typically available for these transfers under a 401(k) plan:

• The recipient spouse may elect to roll the assigned share of the funds directly into a separate individual retirement account;
• The recipient spouse’s assigned share of the funds can stay in the 401(k) plan in a segregated account, with directions as to how they are to be distributed upon retirement; or
• The recipient spouse can elect to receive a cash payment from the account. Withdrawing directly from the 401(k), however, requires careful thought: Substantial tax consequences might arise if this kind of payout is elected, particularly if it occurs before age 59½, when tax penalties for early withdrawal likely apply.

If the recipient spouse elects to roll the assigned funds directly into a standalone traditional individual retirement account (i.e. an IRA), the 401(k) plan administrator typically simply sends a check directly to the brokerage firm that manages that IRA.

Note: None of this is standardized or a static part of every divorce. Dividing a 401(k) is NOT merely included in the legal fine print. This distribution of funds must be specific, and there is no way around the qualified domestic relations order, which requires both the approval of the court as well as the plan administrator (which is on the hook to make sure all the I’s are dotted and T’s crossed correctly so that the Order complies with the terms of the 401(k) plan). Further, every case is different and should be judged on its own merits.

Nicole Taylor is a partner at the Raleigh family law firm of Gailor, Hunt, Jenkins, Davis, Taylor & Gibbs, P.L.L.C. 

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Learn about Parenting Coordinators; episode 5 of podcast “A Year and a Day” available now.

Episode 5 of the podcast is available for download now!  In Episode 5, host Jaime Davis (who is a Certified Parenting Coordinator herself) discusses the topic of “Parenting Coordinators” with fellow family law attorney and Certified Parenting Coordinator Katie King.  If you are involved in a high conflict custody dispute and you and the other parent have a difficult time making decisions that affect the children, you may wish to consider asking the court to appoint a parenting coordinator in your case.

In North Carolina, the court may appoint a parenting coordinator at any time during a child custody action if both parents consent. If the other parent does not consent to having a parenting coordinator appointed, the court can still appoint  a parenting coordinator if the court finds that (1) the case is a high-conflict case, (2) appointment of the parenting coordinator is in the best interests of any minor child in the case, and (3) the parties are able to pay for the cost of the parenting coordinator. The primary role of the parenting coordinator is to help reduce conflict.  For more information about parenting coordinators, be sure to check out Episode 5 of the podcast!

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Episode 4 of podcast “A Year and a Day” to address issues related to divorcing over the age of 50

We are very excited for the upcoming release of Episode 4 of the podcast!  Episode 4 features special guest Haleh Modasser, CPA.  Haleh is the Senior Vice President and Managing Partner of Stearns Financial Group’s Triangle Office.  She has recently published a book entitled Gray Divorce: Silver Linings about the unique issues facing divorcing women over 50.  In Episode 4, Haleh and Jaime Davis discuss the concept of Gray Divorce, the different impact it can have on women versus men, and ways that the impact of a divorce after 50 can be mitigated

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Three Gailor Hunt attorneys named 2018 North Carolina Rising Stars by Super Lawyers


Gailor Hunt is pleased to announce that partners Carrie Tortora and Meredith Cross and associate attorney Jonathan Melton have been named 2018 North Carolina Rising Stars by Super Lawyers.

Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The Super Lawyers selection process includes independent research, peer nominations and peer evaluations.

The Rising Stars list recognizes no more than 2.5 percent of attorneys in each state. To be eligible for inclusion in Rising Stars, a candidate must be either 40 years old or younger, or in practice for 10 years or less.

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Partners Stephanie Jenkins and Jaime Davis Recognized in Business North Carolina’s 2018 Legal Elite


Gailor Hunt is pleased to announce that partners Stephanie Jenkins and Jaime Davis have been named to Business North Carolina’s 2018 Legal Elite, a listing of the state’s top lawyers.

Since 2002, Business North Carolina magazine has honored Tar Heel lawyers by publishing Business North Carolina’s Legal Elite, a listing of the state’s top lawyers in business-related categories. Winners are chosen not by Business North Carolina editors but by the state’s lawyers. Each year, Business North Carolina sends ballot notices to every member of the N.C. State Bar living in North Carolina — asking each a simple question: Of the Tar Heel lawyers whose work you have observed firsthand, whom would you rate among the current best?

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Listen to Episode 3 of podcast “A Year and a Day”

I hope you all enjoyed a relaxing holiday with your families.  Over the holiday, I had the pleasure of recording Episode 3 of the podcast with my law partner Carrie Tortora.  You can find Episode 3 here. In Episode 3, Carrie and I attempt to dispel some common myths surrounding separation and divorce in North Carolina such as whether you need “papers” to be legally separated; whether committing adultery means a spouse loses everything and whether the children get to decide where they live.

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Podcast Episode 1 recap; Episode 2 preview

By: Jaime Davis

I hope you enjoyed the first episode of A Year and a Day.  If you have not had the opportunity to check it out, you can find the podcast here.  In Episode 1, I discuss issues related to co-parenting with licensed psychologist Dr. Lori Thomas who offers tips and suggestions for how parents can continue to successfully co-parent their children despite a separation or divorce.

Episode 2 will be available later this month.  In Episode 2, I will be discussing the topic of mediation with fellow family law attorney and mediator Lynn McNally.  The discussion will address questions such as: How does mediation work? How much does it cost? Why is it beneficial? Are there any downsides?

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Effects of Marriage Equality in Family Law

By: Jonathan Melton

Marriage laws have rapidly changed in North Carolina and across the country. In May 2012, 21 percent of this state’s registered voters cast ballots in favor of a constitutional amendment banning same-sex unions. Fast-forward 18 months to October 2014 and a federal district court invalidated that amendment. And, on June 26, 2015, the U.S. Supreme Court made marriage equality the law in every state. But how do these changes affect our LGBT clients?

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What Right Do You Have to Visit Your Grandkids?

By: Stephanie Gibbs

North Carolina custody laws are clear that parents have the Constitutional right to make decisions regarding their children, including whether their children may visit their grandparents.  What happens when parents “freeze out” grandparents, refusing to allow them to visit the grandkids?

In an “intact family” – a family where mom and dad are living together with the children – grandparents do not have the right to demand visits with their grandkids. But when parents separate, grandparents who have been “frozen out” may have the chance to ask a judge for the right to visit their grandchildren. If one of the parents files a custody lawsuit, both the maternal and paternal biological grandparents may ask to “intervene” in the lawsuit so that they can ask the court to award them visitation rights.  “Intervening” means asking the court to allow the grandparent to become a party to the lawsuit so that he or she can ask the court for visitation rights.

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When Should You Seek “Grandparent Visitation” through the Courts?

By: Stephanie Gibbs

When parents of young children divorce, grandparents may be affected.  In an ideal situation, divorcing spouses allow and encourage their children to continue seeing the family members of both spouses.  Unfortunately, that’s not always the case.  Conflicts that arise during divorce sometimes lead to one or both spouses refusing to allow the children to see the other spouse’s parents.  What can grandparents do in this situation?

In North Carolina, under limited circumstances, the law protects grandparents’ ability to continue seeing their grandchildren after the parents divorce.  Courts can award grandparents “independent” visitation – time in which to see their grandchildren that is not contingent upon the divorcing parents’ approval – if the court determines that the visitation would be in the grandchildren’s best interest.

The first thing grandparents need to know, if they are thinking about seeking visitation through the courts, is that in most cases they must file a “Motion to Intervene” in the parent-spouses’ custody case while the custody case is pending.  A “Motion to Intervene” allows grandparents to enter a custody case by becoming a party to the case.  If grandparents fail to file a “Motion to Intervene” before the custody case is resolved, the “door is closed” and grandparents no longer have the legal ability to seek independent visitation through the courts.

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