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How is Retirement Divided in Divorce?

Posted By Center for Mediated Divorce || 22-Feb-2016

In divorce proceedings, property division also includes retirement accounts. Whether it’s a pension, 401(k), IRA, or stock bonus plan, these can all be included in your divorce property settlement. In order to avoid a tax catastrophe if a mistake is made, it’s important to divide each of these accounts by utilizing a qualified domestic relations order (QDRO). A QDRO determines the designated percentage of your qualified plan account balance or benefit payments which your former spouse will receive once the divorce is finalized. However, he or she is held liable for paying the associated income taxes when that money is given in the form of withdrawals, annuity or a pension. Essentially, this establishes your ex-spouse as a co-beneficiary.

In order to set up a QDRO, you must include the following in our divorce papers:

  • Name and mailing address of the “plan participant” (you) and the “alternate payee” (ex-spouse)
  • Each retirement qualified plan account to be divided in divorce
  • The percentage or dollar amount of benefits to be paid from each account to the alternate payee
  • The number of payments or benefits period covered by the QDRO

If you avoid establishing a QDRO when your qualified retirement account money transfers to your ex-spouse, it’s considered as taxable distribution to you, meaning you owe the IRS for money which ends up in your ex’s wallet. In addition to the income tax bill, you may also be charged with a 10% premature withdrawal penalty if you are under 59 ½ years of age. In regards to IRA accounts, you don’t need to set up at QDRO.

For more information about dividing retirement accounts in divorce, contact our firm today to schedule your consultation.

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