Along with the marital home, the retirement accounts you and your spouse own will likely be the most significant assets to divide during your divorce proceedings.
The court will want to see an equitable division. But splitting retirement accounts can become a complex undertaking due to the rules and procedures you must follow.
There are two kinds of retirement accounts: a defined contribution plan and a defined benefit plan. You might refer to the contribution plan as a savings plan since both you and your employer donate funds. Profit-sharing plans, the 401(k) and the IRA are examples of defined contribution plans. On the other hand, a defined benefit plan is a retirement plan, possibly a pension, that provides a benefit based on years of service. Upon retirement, the employee begins receiving monthly payments that will continue for life.
Before the division of a retirement asset can proceed, a value must be placed on it, after which a judge can determine the amount each spouse should receive. In many instances, the court will execute a Qualified Domestic Relations Order (QDRO). This will instruct the retirement account administrator to divide the asset into two accounts for distribution. The QDRO only applies to tax-qualified retirement plans covered by the Employment Retirement Income Security Act (ERISA). You will not need a QDRO for an IRA, nor does the QDRO apply to government or military pensions.
Information such as the date the retirement account began to accrue as well as the marital cut-off date is essential in determining value. Your attorney will ensure that you receive maximum benefits in the division of any retirement account during your divorce.