Alabama Opens Door for More Retirement Distributions in Divorces

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Alabama Opens Door for More Retirement Distributions in Divorces

Until recently, Alabama courts were unable to force parties to divide retirement benefits in a divorce unless the parties had been married for at least 10 years. However, under a new Alabama law, courts will now be allowed to use discretion in awarding the division of retirement accounts in all divorces.

Why Limit to 10-Year Marriages?

There is good reason for the old restriction. Under the old theory, a person who is working to earn retirement benefits, such as pensions and 401(k) plans, is doing all the work to earn the money. Since forcing a withdrawal can trigger steep penalties and unintended taxes that could eliminate much of the benefit and value of such plans, the old law allowed the parties to postpone actual payment until the person began receiving the retirement checks. So, if a husband had a 401(k), the court can award up to 50% of that retirement account to his ex-spouse. But he would not be required to start distributing his ex’s share until he actually retired and began drawing on the account.

The problem, of course, is that this manner of property division keeps a divorced couple potentially connected for decades, even until death. This does not favor finality or swift resolution and separation of marital bonds. Although the old law did allow the parties to agree upon a lump sum, this essentially forced the difficult compromise of losing money to penalties and taxes in exchange for finality. By limiting these types of divisions to longer marriages, courts generally would offset the difference by requiring larger awards from other sources, thereby protecting the benefits of retirement accounts.

How Does the New Law Change Things?

Under HB 208, Alabama lawmakers decided it made more sense to allow judges the discretion to award retirement divisions in all marriages. This does not mean judges will be required to divide retirement accounts in short marriages. It simply means that it is open to debate in divorce cases. This is long overdue, because income has changed significantly since the original law was enacted decades ago.

Intuit suggests that about 34% of Americans currently are employed by the ‘gig economy,’ meaning they are freelancing or working at jobs that are temporary and usually carry no retirement or benefits, according to CNN Money. Furthermore, with income equality steadily rising, and women making more than at any time in the past, it makes sense to start looking at retirement distributions differently and with a more modern view that allows for a case-by-case analysis. Divorce lawyers have been negotiating retirement distributions for years, as part of settlements; this law just gives judges the ability to do the same.

Hiring a Birmingham Divorce Lawyer

Family courts are among those with the greatest number of pro se (self-represented) individuals. Unfortunately, this often results in a lot of long-term problems, such as endless disputes, unresolved tax and financial complications, and repeated, unnecessary court appearances. The Birmingham family law attorneys of 5 Points Law Group can help you efficiently resolve your divorce without as many surprises. Laws change frequently, so what works today may not work tomorrow. Call (205) 263-0743 or visit us online today to get timely advice to your divorce questions.

Heather Fann
Heather Fann
Heather's practice seeks to preserve the dignity of clients through healthy paths for their changing families, employing both modern and traditional means of resolution including collaborative practice and methods such as use of Parenting Coordinators, as well as mediation, though she stands ready to litigate where necessary.

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