Dividing Retirement Plans During Divorce

Dividing retirement assets is often overlooked in some divorces, but this can be a costly mistake. Next to the family home, retirement plans are one of the biggest assets of the marriage, and should be considering during settlement negotiations. The following information can help you understand more about dividing retirement plans during a divorce.

How are retirement accounts divided in divorce?
How do I get information about his retirement plans?

Topic: Dividing Retirement Assets

Mary's Question: How are retirement accounts divided in a divorce?

Timothy's Answer: Retirement accounts are divided in a divorce in one of two ways; either through the use of a Qualified Domestic Relations Order (QDRO) or the divorce decree. Knowing which way to divide a retirement account depends of the type of retirement account it is. Some courts apply the term "qualified domestic relations" (QDRO) to IRAs, but a QDRO applies to qualified plans and 403(b) accounts, not IRAs. For divorce settlements, the term "transfer incident" is applicable to IRAs. To ensure that the proper language is used in the documentation, parties involved in a divorce settlement must be sure to inform their counsel of the type of retirement plan they have.

In the division of IRA assets (or award to the spouse of the IRA owner) in accordance with a court-approved divorce decree or legal separation agreement, the division is treated as a non-taxable transaction, which could be a transfer or rollover depending on the financial institution. The spouse who receives the assets (referred to as "former spouse") is required to treat the assets as his or her own and is responsible for the tax implications of adding any distributions into his or her income for the year the distribution occurs. Should an individual give IRA assets to a former spouse without receiving a court-approved divorce decree or separation agreement authorizing the change in ownership, the individual will be required to include the amount in his/her income, thus treating the transaction as a distribution to him/herself.

When dividing IRA assets in the divorce decree, the document must address the retirement assets and stipulate how the division should be allocated, that is, whether the assets are shared equally, awarded entirely to one person, awarded partly to one person, etc. Some financial institutions require that the divorce decree reference the retirement account's number and the custodians name. It is important as the IRA owner, that you check with the financial institution regarding its requirements and provide this information to the court.

If the retirement assets in question are part of a qualified plan, they must be divided via the use of a Qualified Domestic Relations Order (QDRO.) A QDRO is a judgment, decree, or order that gives a pension plan participant access to retirement assets that must be used to pay an ex-spouse or dependent children. One should consult an expert in QDRO preparation. It is important the plan administrator review and approve a QDRO to determine if it meets regulatory and plan requirements. » Return to top

How do I get information about his retirement plans?

Deborah's Question: How can I find out what retirement plans my soon to be ex-husband has. I have never seen any kind of statements.

Timothy's Answer: Sometimes the simplest way to uncover this information is to ask. If that does not work, there are other ways for you to find out about your soon to be ex-husband’s retirement plans. Typically, if an attorney who has been hired to dissolve your marriage, they will conduct a formal discovery process. In the discovery process, each attorney requests information about the other spouse’s finances, assets, pensions and any other financial issues that are of concern.

You might also want to consider reviewing your past tax returns for clues as to what type of funds your husband has sold or received interest or dividends on during the calendar year. If you don't have copies, learn more about Getting A Copy of Tax Return Information.

If your husband works for a company, his W2 will report any contributions to a 401k or company sponsored retirement plan. Your husband’s employee handbook will also contain information whether the company offers a pension plan or some other form of deferred compensation. Both will give you clues as to the existence of a plan, but it will not give you any specific information about your husband’s retirement plans. To receive this information you will need an attorney to subpoena it on your behalf.

If your husband is self-employed, you should check Schedule C on your joint tax return to see he has made any contributions to a retirement plan. Again, the tax return will not tell you the exact amount in your husband’s retirement plan, it merely proves a retirement account exists. Your attorney can subpoena this information in the discovery process.

If you have concerns that your husband is not being forthcoming with you about your marital assets and you do decide to get a divorce, I would suggest you consult an attorney to make sure your rights to receive a portion of your marital assets are protected. Using an alternative dispute method, such as mediation, to dissolve your marriage may not be in your best interest. » Return to top

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