Where Do I Start When Dividing Retirement Accounts in a Divorce?

by | Mar 18, 2024

One of the more complex parts of a divorce is the division of retirement accounts. Whether it’s a military pension, IRA, or an employer-sponsored plan, the first steps are to list and confirm those accounts, determine when the accounts were opened, whose name they are in, and the account activity history. Answering these questions play a vital role in determining if the accounts are separate or marital property.

The next essential step is getting a current account statement from the employee or plan administrator, especially for employer-based plans like 401(k)s. Every employer-based retirement account comes with unique rules and nuances. This is where working with a financial professional well-versed in gathering this information can be invaluable.

When dividing these accounts, understanding the account type and details, the  contributions during the marriage period (and if there were any prior to the marriage), and potential distribution restrictions is key. It’s not a one-size-fits-all scenario. Factors like defined contribution versus defined benefit plans, payout structures, and when a Former Spouse can start receiving funds all come into play.

Don’t Forget the QDRO!

Post-divorce, the process doesn’t end with the settlement. For employer-based plans, the QDRO (Qualified Domestic Relations Order) process is necessary. This court order is prepared with the specific language that ensures that the division of the account follows the plan requirements and follows the agreed division in the settlement agreement.

In some cases, giving the entire account to one party while providing an equal asset to the other might be a more strategic approach, rather than attempting to split every component. Overall, understanding the intricate details and seeking professional guidance early in the process can contribute to a smoother and more informed resolution.

Having a knowledgeable divorce and QDRO trained financial professional involved in the divorce proceedings can make a significant difference. They can guide you through the complexities, ensuring that discussions align with the practical options available. Educating all parties about the consequences of division, including potential penalties or surrender charges, will help in making informed decisions.

Contact our office at (850) 252-6325 to schedule to speak with our Certified Divorce Financial Analyst® (CDFA®) and Certified QDRO Specialist™ (CQS™).


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