Helping Clients Navigate A Course To A Better Future

How to properly divide a retirement account in a divorce

Retirement accounts may be an individual’s largest asset. Therefore, these accounts may become a point of contention during a divorce in North Carolina or anywhere else in America. As a general rule, it is a complex process to divide a 401k or other employer-sponsored plans. If it is not divided properly, there could be negative tax consequences for both parties to the divorce. A Qualified Domestic Relations Order, or QDRO, is used to ensure that such accounts are divided properly.

The QDRO is designed to make sure that a spouse doesn’t take the money out of a 401k or similar account to the detriment of the other spouse. It is important to note that an account not covered by the Employee Retirement Income Security Act can be split without a QDRO. Accounts not covered by ERISA include an IRA or government pensions.

To be considered qualified, the order must be approved by the plan administrator. It may be best to consult with an attorney who specializes in crafting QDROs. Otherwise, it may cost more and take longer to draft the order, and making even small errors can have significant consequences. In some cases, it may be necessary to talk with an actuary to determine how a benefit plan should be divided.

In most cases, a retirement account is considered to be marital property. Therefore, it is generally subject to division when a marriage ends. An attorney may be able to work with an individual to determine how such an account needs to be divided. It is possible that only amounts contributed during the marriage may need to be considered when making such a calculation. It is also possible that an individual may forego acquiring a portion of a retirement account in lieu of receiving other assets.