Dividing Retirement Assets
When couples divorce, dividing retirement assets can be split proportionally without tax liability under ERISA, the federal statute that regulates retirement benefits. Whether your retirement plan is a defined contribution or a defined benefit plan, you will need a qualified domestic relations order (QDRO) signed by a judge and accepted by the plan to affect a division of the marital portion of the fund. Contact our divorce attorneys today for help obtaining QDROs and interfacing with plan administrators.
Dividing Retirement Assets | Defined Contribution Plans
Dividing a defined contribution plan after a divorce does not involve tremendous difficulties. If done with a QDRO, the sums in the plan are divided in whatever proportion is agreed upon by the parties or ordered by a judge. The non-participating spouse is called the “alternate payee.” That spouse generally sets up a rollover IRA into which his or her share of the funds is deposited. The transfer from the plan participant to the alternate payee is not taxable.
Several issues can arise when dividing a defined contribution fund. For example, an employer may make contributions into the fund for a specific tax year in the following year. If that fund is being divided during the prior tax year, the contributions that are due from the employer need to be considered.
Dividing Retirement Assets | Defined Benefit Plan
A defined benefit plan is more like a traditional pension that provides a set payment on a monthly basis at the time of retirement. The plan participant may or may not contribute to the plan. These plans often provide many benefits in addition to the monthly payment paid at the time of retirement. For example, they may provide a pre-retirement death benefit, a post-retirement death benefit, a single life annuity, a joint and survivor annuity, early retirement benefits, and more. Each plan has unique benefits and each plan has its own requirements for the preparation of a QDRO.
The benefits that are available (and the impact if those benefits are not preserved) to the alternate payee can be significant. More importantly, if the benefits desired by the alternate payee are not specifically set forth in a separation agreement or court order, they cannot be included in the QDRO. For example, if the parties enter into an agreement and the agreement is silent on the issue of a survivor benefit, the alternate payee cannot obtain a survivor benefit through the QDRO.
To speak with a knowledgeable Saratoga County QDRO attorney, please contact our office today.