Your divorce, property division and splitting retirement accounts

On Behalf of | Mar 16, 2022 | Family Law

If you and your spouse have decided to divorce, you probably worry about property division and the splitting of your assets.

Both you and your spouse have retirement plans. What can you expect in the process of dividing these accounts?

The QDRO

For pensions and 401(k) plans the court will require a qualified domestic relations order or QDRO. This is a judicial decree that confirms the right of a spouse to receive all or part of the account owner’s plan. Once the QDRO is in the hands of the plan administrator, the transfer can take place.

IRA rules

The need for a QDRO does not apply to IRAs. Details for dividing this kind of retirement plan will appear in the divorce decree, which should then be submitted to the IRA custodian. You should consider the tax consequences, which could apply. For example, you would incur taxes on any money you take out plus a 10% early withdrawal penalty if you are under the age of 59-1/2. However, there are no tax consequences and no penalties if you roll funds from your spouse’s account into an IRA of your own.

About pensions

Every employer has different rules about splitting the company’s pension plan. Some do not allow it. However, if the employer permits splitting, a professional will first have to determine the value of the plan, a process that can take months.

Equitable distribution

Virginia is an equitable distribution state, which means that the court will divide your assets and marital property fairly but not necessarily equally. Retirement plans are among the more complex assets, but your advocate will see that you receive an optimal division as part of your divorce settlement agreement.