Whether you have been married for 30 years or 3 years, divorce is never an easy process to deal with. While going through this hardship in your life, you will still need to inform yourself of the financial decisions that will need to be made regarding the assets you and your spouse have accumulated through your marriage. Retirement funds are one of the most valuable assets people own, which leads to them becoming an on-going issue during divorce proceedings. However, sorting out the division of retirement assets is still a complicated problem since they are subject to tax implications. At Konicek Law, PLLC, the legal services are tailored to your specific needs. Konicek Law offers representation for a broad spectrum of family law issues including divorce, modification of alimony and child support, determination of paternity, child support enforcement, department of revenue child support cases, domestic violence cases, enforcement and contempt actions, uncontested divorces, and prenuptial agreements.
If you’re going through a separation or divorce and your spouse has an employer-sponsored retirement plan such as 401k or pension plan, the other spouse is legally entitled to a portion of the balance unless you have a prenuptial agreement. Because of this, the question you might be asking yourself is if your spouse was the breadwinner, how do you protect your share of their retirement account? The best answer to this would be a Qualified Domestic Relations Order.
Qualified Domestic Relations Order (QDRO)
A Qualified Domestic Relations Order (commonly referred to as a QDRO) provides protection of your interests in these situations. A QDRO is a court order, judgement, or decree related to child support, alimony, or property rights that can also instruct your significant other’s pension plan on how to pay your portion of the benefits. Furthermore, a QDRO gives you protection and guarantees that funds can’t be taken out or separated from your account without penalties.
On the contrary, never assume your rights to your retirement assets are covered due to the fact your divorce decree states you have rights to part of your spouse’s retirement funds. It’s important to note QDRO only applies to plans that are IRS tax-qualified and covered by the Employee Retirement Income Security Act. A QDRO doesn’t apply to military or government pensions, which are governed by other laws. Fortunately, you don’t need a QDRO to split up IRA and SEP assets.
Consulting an Attorney or Specialist
Domestic Relations Orders are not considered Qualified until it has been approved by a retirement plan administrator and the court. Retirement plans most of the time have standard QDRO forms that a lawyer will be able to use for drafting the document. Majority of the time, these are sufficient, but you should keep in mind when you use an attorney who is a specialist in QDROs that all of your rights are fully protected with the related issues that were brought up in the martial agreement.
However, if your attorney doesn’t have a lot of experience with QDROs then it will take them longer to do the research and paperwork, which could result in more legal fees for you. There’s also the possibility they will miss something important that can heavily impact your case when going through the whole process.
Another aspect of the QDRO process is the type of retirement plan you have. Contribution plan assets like 401ks are easier to calculate than benefit plans assets such as pensions. Benefit plan payments go off complex actuarial calculations and factors which include years of employment. If you or your spouse has this kind of retirement plan, your lawyer will probably need to hire an actuary to figure out your share of the assets.
It’s vital that your lawyer reads over your retirement plan’s description and other documents to ensure that the QDRO terms agree with the terms of the martial agreement.
The Bottom Line
Divorce can be extremely overwhelming due to the upfront attorney fees and emotional stress you have to endure. Educating yourself is the best thing you can do and will allow you to take the appropriate legal steps to protect your rights and retirement assets.