Division of Retirement Assets

By Justin Ruth | November 11, 2014

Following a divorce, it is often necessary to divide retirement accounts accumulated, by either spouse, during the marriage. This requires additional work as the division of these accounts is not accomplished with the Judgment of Dissolution or Divorce Decree alone.

The most common reason to divide retirement accounts is as part of the ultimate division of marital property between spouses.  However, retirement accounts may also be divided for purposes of spousal (i.e., maintenance or alimony) or child support.  Whether or not we represented you during the divorce, we can assist with the division of retirement accounts.

Common types of retirement assets include:

  1.  DEFINED CONTRIBUTION PLANS. Examples include: 401(k), savings and investment, and 403(b) plans. These plans are qualified retirement accounts established by an employer, which are subject to the Employee Retirement Income Security Act of 1974 (ERISA). An employee can choose to participate in the plan or not. The value of a defined contribution plan is typically set forth as an account balance.  However, there are exceptions and some a defined contribution plans will be comprised of other components in addition to an account balance.
  2.  DEFINED BENEFIT PLANS. These plans are qualified annuities (generally referred to as a “pension plans”) established by an employer for its employees. Defined benefit plans, like defined contribution plans, are also subject to ERISA. The employee will receive an annuity at retirement, or his/her normal retirement date as defined by the plan.  Typically, the benefit will be received in the form of monthly payments for the duration of the employee’s life – although there may be several other payment options depending upon the plan.  In contrast to defined contribution plans, for the most part, defined benefit plans do not carry account balances.
  3.  INDIVIDUAL RETIREMENT ACCOUNTS (IRAs). IRAs are not ERISA governed retirement programs. They are established by individuals – not employers; however, in addition to the individual investor, employers can contribute to them.

In order to divide a qualified retirement account, a specific order of the Court known as a Qualified Domestic Relations Order (QDRO) is required.  A QDRO is a document that complies with ERISA and is separate from the Judgment of Dissolution or Divorce Decree.  Although the elements of a QDRO are constant, they are complex documents that must be tailored to each plan and its specific nuances.

IRAs do not require a QDRO for division – although some brokerage firms will accept them. Typically, IRAs can be divided with a simple Letter of Instruction or other institutional form, along with a copy of the Judgment of Dissolution or Divorce Decree.  In general, the process to divide an IRA is considerably less time consuming than the preparation and execution of a QDRO for a qualified retirement account.

In addition to the aforementioned retirement accounts, there are other plans such as Municipal/Public Employee and Deferred Compensation Plans, which are employer provided retirement plans that are not subject to ERISA. Examples include: “governmental” retirement plans, and certain compensation plans (generally high level employees/executives).  These types of plans often require a Domestic Relations Order (DRO) for division.

Military Pensions and Federal Retirement Plans, are also employment related plans, that typically have very specific requirements and are often subject to years of service (which may or may not need to be consecutive). Examples include: Federal Employees Retirement System (FERS), and Civil Service Retirement System (CSRS).  In most cases, a Court Order is all that is required in order to divide a federal retirement plan.

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