Any property acquired during the marriage must be split between the couple at the time of divorce. This includes pensions and retirement funds. Any amount contributed during the marriage is considered joint property and can be split directly in half. Any amount contributed before or after the marriage is considered to belong to the individual.
Even though pensions and retirement plans are subject to divorce law, it is often best to file a Qualified Domestic Relations Order (QDRO).
What is a QDRO?
A QDRO is issued in addition to a divorce decree giving your retirement plan administrator specific guidance on how to divide your retirement plan after the divorce.
If it was created or increased during the marriage, a retirement plan is considered community property. However, it can be kept intact if both parties agree to do so. For example, one spouse may keep the family home while the other keeps the 401(k) and pension plan.
A QDRO ensures that there is no confusion when you seek to access retirement funds. Some retirement plans prohibit paying benefits to anyone other than the person who earned them unless directed to do so with a QDRO.
You will need a QDRO for these retirement plans:
- Employee stock ownership plan
- Tax-sheltered annuity
- Profit-sharing plan
- Deferred compensation retirement plan
You general do not need a QDRO for an IRA or government retirement plan, although it’s better to have one so there are no issues when you seek to access the plan.
Who really needs a QDRO?
While the parties in the divorce need a QDRO to maintain equal separation of assets, the QDRO also spells out for the benefits administrator exactly how the retirement fund is to be issued.
QDROs are complicated and need to meet specific legal criteria both for the divorce and the retirement fund. There are attorneys who specialize in QDROs and the formulas it uses to determine which plan participant gets what amount of the plan.