People all over the United States are suffering from the long-term effects of the COVID-19 pandemic – emotionally, physically, and especially financially. The CARES Act § 2202 has authorized special distribution options for retirement plans and has expanded loans from certain retirement plans. Under the CARES Act, the IRS will not deduct the 10% additional tax from early distribution of a retirement account for individuals directly affected by COVID-19. The explanation of the benefits of this specific section of the CARES Act is outside the subject of this blog. What happens if you are affected by COVID, you and your spouse are separated, and you withdraw money from your retirement under this program?
North Carolina is an equitable distribution state, meaning that all marital property, both real and personal, acquired between the date of marriage and before the date of separation, is subject to being divided equally among the parties upon divorce. Marital property can include homes, bank accounts, retirement accounts, mortgages, and debt, among other things. North Carolina determines equitable distribution values as of the date of the parties’ separation. Legal separation in North Carolina begins when the parties live in separate residences with the intent of at least one party of the marriage not to resume marital relations.
If you and your spouse separate and you have to withdraw money from your retirement due to the COVID pandemic, you could be liable to your former spouse the marital portion of the funds removed from the account. Remember that the portion of the retirement earned during the marriage is considered marital and subject to equitable distribution. There are instances where the former spouse is not entitled to the entire retirement account value. If you have a retirement account that predates the marriage and you continued to contribute to the same account during the marriage, when you separate your former spouse will be entitled to the marital portion of that account.
The division of assets can become tricky during a divorce. An experienced family law attorney can assist in navigating the issues and helping protect your assets.