New York State Qualified Domestic Relations Orders
Effective divisions of pensions, retirement accounts with QDROs
When couples divorce, the assets they’ve reserved for retirement can be divided 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 effect a division of the marital portion of the fund. The divorce attorneys at Jean M. Mahserjian, Esq., P.C. have vast experience obtaining QDROs and interfacing with plan administrators to secure a division of the funds.
Defined contribution plans
A defined contribution plan would include a 401(k), a SEP account, a SIMPLE 401(k), profit sharing, and other similar plans where the employee or “plan participant” contributes to the fund. The plan participant’s employer may also contribute to the plan. These funds do not pay out a guaranteed pension payment upon retirement. Rather, the plan participant can access his or her account at a certain age and withdraw money for retirement.
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.
Another issue that must be considered is the appreciation or depreciation of a defined contribution fund after the date set for dividing the fund. For example, if a 401(k) contains $40,000 and you and your spouse agree to equally divide that fund, you should not simply agree to give or take $20,000 as a one-half share. The 401(k) will likely either appreciate or depreciate before the QDRO can be prepared, signed and implemented. Any agreement must clearly state what will happen to appreciation or depreciation of that fund in the interim period. Likewise, any request to the court to divide a fund must include a request that the appreciation or depreciation of the fund be made a part of the court’s decision regarding the fund.
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.
Contact our experienced Albany QDRO attorneys
To speak with a knowledgeable Saratoga County QDRO attorney at Jean M. Mahserjian, Esq., P.C., call us at (518) 383-1182. We will be happy to answer your questions and schedule an initial appointment at our Clifton Park office. You can also schedule an appointment by contacting us online.