Alabama is an equitable distribution state. This means that, during a contested divorce, the judge will decide whether property should be divided and, if so, how to divide it fairly. Sometimes, retirement accounts, such as a 401(k), can be included in the property division. Alabama law requires the judge to make sure certain conditions are met and follow a few rules when dividing a retirement account.
During a contested divorce in Alabama, the judge will make decisions regarding the potential division of any property held by either or both spouses. To do so, the judge will divide assets in a way the judge deems just. This does not mean the division will be equal. Instead, the judge will find an equitable solution to dividing the property. Therefore, a retirement account, such as a 401(k), will not always be divided.
Alabama law requires the judge to verify that certain conditions are met before retirement benefits, such as a 401(k), can be included in the property division. The spouses must have been married for a period of 10 years during which the retirement benefits accumulated. The judge may not consider retirement benefits that were accumulated before the marriage or divide more than 50 percent of the total retirement benefits.
The judge may not divide any retirement benefits, such as a 401(k), that were accumulated prior to the marriage. For example, if a spouse made contributions to a 401(k) prior to marriage, that portion of the 401(k) would not be subject to division. This includes any interest or appreciation that may have accumulated prior to the marriage.
If the judge finds that an equitable division of property should include part of a 401(k) or other retirement account, the spouse receiving a portion of the retirement account will not always receive it right away. Instead, the receiving spouse must wait until the spouse holding the retirement account begins to receive benefits or turns 65 years old. If the spouses wish to finalize the property division before that, Alabama law allows the parties to agree to a lump sum settlement.