Understanding Retirement Accounts and Divorce

If you have a retirement account through your employer, you may note money going into your retirement account with each pay check. You work hard for the money in your retirement account. So, do you have to share it upon divorce?

The answer is most likely, yes. Divorce courts are generally looking to divide all the marital assets and debts equitably or fairly. In most cases, this will include the court dividing retirement benefits between soon to be ex-spouses.

The question of how the retirement accounts will be divided rests on how many other marital assets there are. Marital assets are generally assets acquired during a marriage and increases in value on assets that either spouse had prior to the marriage. If each spouse has about the same in their own retirement accounts, the court may say that each spouse keeps his or her own account. If one spouse stayed home to care for the parties’ children and therefore has significantly less retirement than the other spouse, the spouses might expect closer to a 50/50 split.

So how are retirement accounts divided? There is a specific order called a Qualified Domestic Relations Order (QDRO) that is submitted to the account’s plan administrator and to the Court for approval. Once approved, the retirement plan administrator will divide the retirement account as instructed. Generally, this will result in one spouse with their account, at a decreased value, and the other spouse with a new account in their own name. Depending on the Order, the spouse with the new account may be able to cash out their portion (subject to various taxes and penalties), roll the amount into another retirement account of their choosing, or leave that amount where it is for their own retirement.

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For specific information regarding the division of retirement and assets upon divorce, contact an experienced family law attorney at Jorgensen, Brownell & Pepin.