In any divorce, the division of assets can be one of the most challenging, complex, and emotionally trying aspects you will face. Often, dividing assets leads to major disagreements over what each spouse should be awarded, which only serves to exacerbate feelings of anger and grief regarding the end of the marriage.
One particularly tricky type of asset to divide is a retirement account. Not only are there emotional considerations, negative tax consequences, and potential valuation issues, but actions regarding the division of a retirement account must also be compliant with strict standards regarding employee retirement set forth in the Employee Retirement Income Security Act of 1974 (ERISA).
To avoid being taxed when the retirement benefit is divided, a special court order called a Qualified Domestic Relations Order (QDRO) is required in most cases.
The point of a QDRO is to establish an “alternate payee” on the retirement account in question, allowing a former spouse to access the funds along with the original payee on the account.
However, QDROs only apply to private employee retirement benefits (401(k)s) that are specifically subject to ERISA. There are separate actions that must be taken if the retirement account in question is a federal, state, or municipal retirement account.
If you plan on dividing a retirement benefit in your divorce case, you will need an attorney to help you through the process. Your divorce attorney should work with a QDRO attorney to hammer out the complex terms that will govern the division of the benefits, and to make sure the divorce judgment includes the proper language to carry through the division. Once the divorce has been finalized, the QDRO attorney will draft a specialized court order dividing the retirement benefit which follows the requirements set forth by ERISA. Once that order has been signed by a judge, it will be forwarded to the retirement plan administrator who will ensure that it complies with ERISA and then effectuate the division.
Depending on the type of benefit to be divided, the alternate payee (the party receiving a share of his or her spouse’s retirement benefits), may have a number of different options available to him or her with regard to receipt of the funds. These options range from an IRA rollover to receiving a share of pension benefits at retirement.
Keep in mind, completing a QDRO can be a very complex process, and it requires very specific language and actions on the part of your lawyer. To learn more about QDROs or if you are facing a divorce and you need dedicated legal guidance and advocacy, please contact Pacific Cascade Family Law today.