Many people's investments for their retirement are among the most precious things they own. This indicates that they are often a major contention throughout the divorce process. One of the most challenging components of getting a divorce is figuring out how to divide the retirement assets, particularly if there are tax ramifications involved. Because of this, they are often not treated appropriately.
You have a legal right to a portion of the remaining amount in your spouse's employer-sponsored retirement plan, such as a 401(k) or pension plan, if you are getting a divorce and your spouse has such a plan. That is assuming you do not have a prenuptial agreement that states anything else. It also works the other way around, which means that if you have an employer-sponsored retirement plan, your spouse is eligible to receive a portion of the value of that account.
Qualified Domestic Relations Order
In a situation like this, you may want to consider obtaining a qualified domestic relations order, often referred to as a "QDRO." A qualified domestic relations order (QDRO) is a court order, judgment, or decree that addresses issues of alimony, child support, or property rights. In addition, it may provide your spouse's pension plan with instructions on how to pay out your portion of the plan benefits.
You are safeguarded by a qualified domestic relations order (QDRO), which also ensures that a divorce agreement does not let the money in your retirement plan be taken out without incurring a penalty and subsequently transferred to the retirement account of the non-working spouse (typically an IRA). Do not assume that your rights to retirement assets are covered just because the divorce judgment indicates that you have a claim to a portion of your spouse's savings. This does not guarantee that your rights will be protected.
Creating a QDRO While Going Through a Divorce
It is impossible to have a domestic relations order (DRO) regarded as "qualified" unless it has been sanctioned by both the retirement plan administrator and the court. Your attorney may be able to utilize standard QDRO forms that are included with retirement plans as a resource for drafting the text of a QDRO. Sometimes they are sufficient, but if the portion of your spouse's retirement account that belongs to you is substantial, you may want to consult with an attorney.
If you choose a lawyer specializing in QDROs, they can guarantee that every component of the marriage settlement agreement is included in the QDRO. They can also assist in guaranteeing that your rights are properly protected, which a simple QDRO form may not be able to do for you. This is another benefit of working with an attorney.
If your attorney lacks expertise with QDROs, it may take them more time to perform the research and fill out any documents, which may increase your spending on legal costs. There is also the possibility that they could overlook something essential that will cost you more money.
The kind of retirement plan at issue is another consideration that must be made when establishing a QDRO. Calculating the value of assets held in defined contribution plans, such as 401(k)s, is less complicated than calculating the value of assets in defined benefit plans (like pensions). This is because payouts from defined benefit plans are determined by a combination of sophisticated computations and other criteria, such as the number of years worked. If your spouse has this kind of plan, your attorney may have to pay for the services of an actuary to determine how much of the plan assets are yours.
Because the provisions of the QDRO and the conditions of the retirement plan need to be compatible, your attorney should review the summary of the retirement plan and any additional plan documentation. It is important to remember that the concerns pertaining to defined contribution plans are distinct from those pertaining to defined benefit plans. Working with an expert is beneficial for various reasons, including this one.
How Your Retirement Benefits Might Look Like When You Retire
This subject typically gives people the impression of being unclear. Because retirement account money that is contributed during a marriage is considered marital property in most states, this implies that you and your spouse have an equal claim to those funds. If one of you joined the marriage with cash already in a retirement account, that money is often considered distinct property in a divorce. Still, the law in your state may provide an exception to this general rule. In the case of a divorce, the only assets subject to the division are those regarded as marital property. The assets that each spouse brought into the marriage and their earnings during that time make up the couple's marital property.
