What many people do not realize when they begin the divorce process, is that retirement funds, including pension credits, can be considered marital property. These assets are marital property if they were earned during the marriage and can be subject to division during a divorce. Due to federal laws, these funds must be divided through an instrument called a Qualified Domestic Relations Order, more often referred to as a QDRO.
A QDRO is a type of court order which permits an individual who is not the pension or retirement plan participant to receive all or part of the payouts from the plan. A QDRO must meet certain requirements under federal and state law in order for it to be valid, accepted, and followed by the retirement or pension plan.
Each retirement plan generally has its own specific limitations and requirements for what language must be included in the QDRO and how each specific retirement plan can be divided. One way retirement assets can be divided is by rolling funds from one retirement account to another. In other instances, the receiving spouse may instead decide to receive a cash payout. A QDRO in this scenario allows the receiving spouse to avoid the 10% tax penalty usually placed on early withdrawals from retirement accounts.
Do not wait until the divorce is finalized to hire an expert to draft your QDRO, in fact, the earlier the better as the QDRO process can be complicated and tedious. Most retirement plans will allow the submission of a draft QDRO in advance, so that a party knows whether the QDRO will be accepted by the retirement plan once it is signed by a Judge. When the QDRO is drafted before the final divorce decree has been entered, parties will know exactly how the retirement assets can be divided prior to the Court entering final orders in the divorce, thus avoiding costly litigation after the divorce has already been finalized. Furthermore, it is also important to make sure that your separation agreement and divorce decree contain accurate language regarding the division of retirement funds. There are multiple documents that your QDRO expert will need in order to draft your QDRO during the divorce process: (i) a current statement of all retirement and pension plan assets, (ii) the summary plan description, (iii) the plan document for each plan, (iv) the contact information for the plan administrator, and (v) any written QDRO procedures.
There are many ways to equitably divide the retirement assets in a marriage. It is very important to seek legal advice from a knowledgeable family law attorney in the case of a divorce involving retirement or pension plan benefits. Dividing these plans can be very complicated and intricate and legal advice may be necessary in order to properly draft a QDRO that both the court and retirement plan will approve.