Retirement Division in Divorce

QRDO Retirement DivisionHow are retirement benefits divided in your divorce?

The most valuable assets of most marriages are the home and retirement benefits.   North Carolina’s equitable distribution law allows the court to divide these (and other) assets if they are marital property.

Unlike financial assets such as savings, money market and checking accounts, it is unwise (or even impossible in some circumstances) to simply withdraw money from a retirement account like a 401(k) or IRA to transfer to the other spouse.    The reasons that withdrawing funds from these accounts is unwise is because of the severe tax consequences to certain kinds of withdrawals form these kinds of accounts.  A special kind of document is required in most circumstances to allow the division, and this is called a QRDO.

Qualified Domestic Relations Orders (QRDOs) are court orders with specialized language that are applied to retirement plans subject to the Employment Retirement Income Security Act (ERISA).  There are other non-ERISA retirement plans that are also frequently divided in divorce.  These include state, federal and military retirement and pensions.

Keep in mind that there are two basic types of retirement assets: defined benefit plans and defined contribution plans.     The type of plan has an impact on how it is valued for purposes of figuring out what a reasonable distribution of property

Defined Contribution Plan (DCP):

A 401(k) is a defined contribution plan.  Generally speaking, the value of a DCP is the account statement balance on any given date.  For example, if someone wants to know the value of  a Fidelity 401(k), simply collect the account statement on the date that is of interest.  Usually this date is the date of separation of the parties.

Defined Benefit Plan (DBP):

A company pension is an example of a defined benefit plan.   The DBP is characterized by statements showing what a person’s retirement would be if they retire on a certain date in the future and the statement usually shows this as a monthly amount.   This kind of retirement plan is more difficult to value than the 401(k).   To obtain a present value, a math process has to be performed where the goal is to calculate the present value of the future stream of retirement benefits.  With any prediction such as this, the value will change based on the variables used.  The variables in this kind of present value calculation are life expectancy of the plan participant and the discount rate.

Conclusion:

The QDRO is a complex document because not only must it be a proper court order, it must comply with the ERISA requirements.

How to get assistance with a QDRO in your case?  There are several choices.  Your lawyer can help you with it.  You can also get information from the retirement plan administrator.

 

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Raleigh divorce lawyer Scott Allen handles equitable distribution, retirement division, and other related matters.

If you have questions or need assistance call him at (919) 863-4183 or email at sallen@allenspence.com.