Dividing the Retirement Money in a Divorce

Retirement accounts (including pensions) and the family house can be the most valuable assets in the marital estate, and should not be minimized or overlooked.

When couples divorce, the spouses divide their marital assets.  These include retirement accounts created, or added to, during the course of the marriage. Even when the so-called Golden Years are a long way off, retirement accounts must be valued at the time of divorce. There are a variety of ways to value such accounts, depending on marital assets and goals.

Retirement accounts are assets, which include pension benefits earned during a marriage, retirement savings accounts started during a marriage, and the earnings on these accounts that accumulated during the marriage.

These retirement assets include IRAs, 401(k)s, 403(b)s, thrift savings plans, profit sharing, money purchase plans, pensions, stock options, annuities and any other deferred compensation accounts or plans; military, FERS, CSRS, state, county, municipal, union and private defined benefits plans and defined contribution plans; and survivor benefits.

Not all retirement assets are part of the marital estate. Excluded are plans and accounts acquired before the marriage, received by inheritance or as a gift from a third party, excluded by valid agreement, such as a pre-nuptial agreement, or interest and income traceable to any of these sources.

Payments made towards a 401(k) prior to marriage, for example, as well as any increase in value during marriage that is directly traceable to the portion acquired before marriage are usually non-marital property. The treatment of interest varies by state.

A qualified domestic relations order (QDRO) is a court order that allows pension plans to divide certain retirement benefits in a divorce action. It sets forth the rights of each of the spouses and the value of their retirement benefits, and includes specific instruction regarding how the benefits should be distributed between the spouses.

QDROs are required when dividing pension plans, profit-sharing plans and 401(k)-type plans.

Military pensions, federal, state, county and city retirement plans have their own rules regarding division during divorce.

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