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Many people with retirement assets, such as IRAs, 401(k)s and pension plans, think the assets are protected during divorce. In most states, if your spouse obtains a Qualified Domestic Relations Order (QDRO), retirement assets are subject to division by the court.
In most states, retirement plan assets may be divided between the spouses according to the divorce laws in your state. The following types of retirement assets are typically subject to division between the spouses: pension and 401(k) plans, government employee retirement plans, military retirement benefits and IRAs. For these accounts to be properly distributed, one party must obtain a QDRO.
A QDRO is an order in a divorce decree or property settlement that gives a former spouse the right to receive all or part of the other spouse's qualified retirement plan benefits. The order requires the receiving spouse to pay the income taxes on those benefits.
Under the Internal Revenue Code, a QDRO must contain all of the following elements to be effective:
When the parties obtain a valid QDRO, the spouse that is receiving a share of the retirement assets is taxed on the funds that are withdrawn from the retirement plan account, but the 10% early distribution penalty tax doesn't apply. The receiving spouse can also elect to roll over any distribution into his or her own IRA without incurring income tax. The rollover must be completed within 60 days of the spouse's receipt of the plan distribution.
Learn how to protect your financial future by connecting with a local divorce lawyer. Call 877-349-1310 or fill out a divorce case review form to schedule a preliminary consultation today. Find out what you should and shouldn't include in a Qualified Domestic Relations Order to receive retirement benefits or how you can protect your retirement assets by connecting with a divorce attorney near you. Start to protect your financial future today.
The above synopsis of retirement accounts is by no means all-inclusive and is not intended to provide legal advice. These laws may have changed since our last update and there may be additional laws that apply in your situation. For the latest information on these divorce laws, please contact a local divorce lawyer in your area.