A popular question we often hear in our practice is, “can we divide retirement accounts?”. Retirement accounts are commonly divided as part of the divorce process. Depending on the type of account, division can be done in either the General Judgment (divorce decree) or by supplemental documents entered by the court after the dissolution itself is finalized. Division of a retirement account due to divorce is not a taxable event, nor is it necessary to request a distribution to pay a spouse their entitled amount.
How Do Pensions Work in Divorce?
Pensions earned during the marriage generally fall into the category of joint assets, and are handled along with retirement accounts. The specific laws that govern pensions during a divorce, and their division, are complicated and vary state by state. Ultimately, like retirement accounts, the parties can either agree on how to divide the pensions or–if an agreement cannot be reached–it is up to the courts to decide if and how pensions are divided. Likewise, waiting until your former spouse retires (which may be after the divorce) is not an appropriate time to ask for pension. It is an asset that must be addressed in the divorce proceeding. Separating retirement assets is a particular area of law that is often handled by an attorney who specializes in it. Your divorce attorney will know who to contact to divide the pension.
The Process of Splitting Retirement Assets
You can’t just withdraw from your retirement accounts (before retirement age) and give the money to the other person without incurring extra taxes and fees for both of you. To avoid this, a Qualified Domestic Relations Order (QDRO) needs to be given to the plan administrator with instructions on what money should go where and when (for example, distribution might not be immediate if the plan is not yet fully vested). Due to the complexity of the QDRO document and the specific language required by both the courts and most retirement/pension plans, it is advisable to get the assistance of a family law attorney when splitting retirement assets.