How Are Retirement Accounts Split in Divorce in Hawaii?
A family law attorney can guide you through transfers and QDROs in Hawaii
on July 2, 2021
Updated on May 3, 2022
Dividing property in a divorce is never easy. Certain types of assets, including retirement plan assets, can be especially difficult to deal with. This raises an important question: How are retirement benefits divided in a divorce in Hawaii? The short answer is that retirement accounts are subject to the state law equitable distribution standard—but there are specialized strategies that divorcing couples need to use to avoid early withdrawal fees and other tax penalties. In this article, you will find a more comprehensive explanation of retirement accounts and divorce in Hawaii.
Hawaii is an Equitable Property Division State
Under Hawaii law, a divorcing couple’s property and assets are subject to the state’s equitable distribution rules. Simply put, equitable distribution requires marital property to be split in a “fair” manner. With equitable distribution, property may or may not be divided 50-50. It depends on the specific circumstances of the case. All of a couple’s marital property falls under the equitable distribution rules, including retirement accounts,
A Qualified Domestic Relations Order (QDRO) Will Protect Your Assets
Most people have a large share of their retirement savings in a tax advantaged account, such as an Individual Retirement Account (IRA) or a 401(k). By saving money in these accounts, you can limit your exposure to federal taxes. However, IRAs and 401(k)s are subject to strict disbursement rules. If you draw on these accounts early, you could be hit with a large tax penalty. This creates a serious challenge for couples who want to split up the proceeds of a retirement account in a divorce.
A qualified domestic relations Order (QDRO) provides the solution. The Internal Revenue Service (IRS) explains that a QDRO is a legal order that allows a retirement plan to pay benefits directly to an alternate beneficiary without any adverse tax consequences. Essentially, a QDRO allows a current or former spouse to be treated like one of the plan’s participants.
A Hawaii Divorce Lawyer Can Help You Find the Right Solution
The retirement funds held by you and your soon-to-be ex-spouse are generally marital assets in Hawaii. These retirement assets will be subject to property division in a divorce. However, you should not simply withdraw the assets out of a tax-advantaged retirement account and split them up. If you do so, it could subject you to significant early withdrawal penalties and other tax penalties.
Instead, you can use a type of legal document called a qualified domestic relations order to ensure that everything is divided properly without any penalties. A QDRO should always be drafted by a lawyer, as it must meet certain strict technical standards to be valid. If you have any specific questions or concerns about retirement accounts and divorce, contact an experienced Hawaii family law attorney for immediate help. If you’d like to learn more about this area of the law, see our overview on divorce law.