Property Division Information - Retirement Benefits in Divorce

By Staff Writer

In many states, a pension or retirement account is considered a marital asset and is, therefore, subject to division in a divorce action. If you are entitled to share in the retirement assets of your spouse, it is crucial that you understand the mechanics for effecting the transfer. Until the process is finalized, your entitlement to share in the retirement assets of your spouse will not be guaranteed. If this process is not finalized and your spouse dies, the remaining retirement benefits, if any, will pass to the beneficiary designated by the decedent. All too often, the decedent will not name his or her ex-spouse as the beneficiary of these benefits and, as a result, that former spouse will receive nothing regardless of the provisions of the judgment of divorce.

Upon resolution of the divorce action, many who are entitled to share in the retirement assets of their former spouse, are surprised and frustrated to learn that there is additional work to be done to finalize the transfer of the retirement assets. The signature of the judgment by the Court is not enough to secure an individual’s share of a pension or other retirement asset.

After the divorce action has been resolved, your attorney must work closely with the administrator of the retirement plan to finalize the transfer. For IRAs, 401k and other defined contribution plans, many plans will automatically transfer your share of the account from the account maintained by your former spouse into an account in your own name in a process known as a "Roll-Over". If the plan will allow such a transfer, all that is usually required is the completion of a standard "Roll-Over" form. Before transferring the funds from the account of your former spouse, you should speak with your accountant as, depending on the manner in which the funds are transferred, you could incur tax penalties.

If you are entitled to share in your former spouse’s pension or defined benefit plan, plan administrators generally require that an Order be prepared directing the transfer. Known as a Qualified Domestic Relations Order ("QDRO") or Domestic Relations Order ("DRO"), this Order will be signed by the Judge who granted your divorce and filed with the plan administrator. It will not only direct the plan to pay benefits to you, but will specify crucial details of the transfer such as how your share of the benefits must be calculated and paid. The language which is contained in the QDRO could seriously effect your benefit and, as such, should be carefully drafted by your attorney.

Most large plan administrators are well versed in the preparation of QDROs and will be able to provide your attorney with their standard form QDRO. Other plan administrators will be unable to provide such specific guidance. After your attorney has drafted the QDRO, either with the assistance of a plan-provided form or not, he or she will send the QDRO to the plan administrator for approval. After the QDRO has been approved by the plan administrator, sometimes after several revisions, it will be sent to the Judge for his or her signature. It is only after the QDRO is signed by the Court and served on the plan administrator that your rights to share in your former spouse’s retirement benefits are secured.

Because the preparation of a QDRO can be time extensive, in negotiating a settlement to your divorce action, you should consider not only which attorney should be required to draft the QDRO, but which party should pay the legal fees and other costs.