Retirement Accounts
Many people with retirement assets in a divorce case-such as IRAs, 401(k)s, and pension plans-think these assets are protected from their spouse. This is erroneous. In most states, if your spouse obtains a Qualified Domestic Relations Order (QDRO), retirement assets are subject to division by the court.
- Are retirement assets subject to a division between spouses in a divorce?
- What is a QDRO?
- What must be contained in a QDRO?
- The Effect Of A Valid QDRO
Are retirement assets subject to a division between spouses in a divorce?
In most states, retirement plan assets are subject to a division between the spouses according to the state's property division laws. The following types of retirement assets are typically subject to division between the spouses: pension and 401(k) plans, federal, state, and local government employee retirement plans, military retirement benefits, and IRAs. However, in order to ensure the proper distribution of these assets, the parties must obtain a QDRO.
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What is a QDRO?
A QDRO is an order contained 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 and requires the receiving spouse to pay the income taxes on those benefits.
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What must be contained in a QDRO?
Under the Internal Revenue Code, a QDRO must contain all of the following elements in order to be effective:
- It must provide for child support, alimony payments or marital property rights for a spouse, former spouse, child or other dependent of a qualified retirement plan participant and it must be made pursuant to a state domestic relations law-such as a community property law.
- It must create or recognize the existence of the right of a divorcing spouse to receive all or a portion of a participant's benefits under a qualified retirement plan.
- It must specify the following:
- Contact information for both spouses
- All retirement assets to be divided up in the divorce
- The amount of money being paid to the spouse
- The number of payments being made
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The Effect of a Valid QDRO
When the parties obtain a valid QDRO, the spouse that is receiving a share of the retirement assets is taxed on the funds when the funds are withdrawn from the retirement plan account, but the 10 percent early distribution penalty tax doesn't apply.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. However, the rollover must be completed within 60 days of the spouse's receipt of the plan distribution.
The topic of QDROs and the division of retirement plan assets is very complex, and you should make sure you have experienced counsel if your divorce involves retirement plan issues. The attorneys of TotalDivorce.com have the necessary experience to maximize your recovery in this area. If you would like to speak to an experienced divorce attorney about this issue, or if you're ready to file for divorce, we make it easy for you to do so. Simply call our number, 1 (877) 349-1310, and you will be connected with a participating divorce attorney in your area who will schedule an initial consultation with you. You can also use our online case review form. Just take a few moments to give us some information about your case (all of which will be kept totally confidential), and one of our experienced divorce lawyers located in your area will get back to you to discuss your case and the options available to you.