In most states, retirement benefits accrued during a marriage are divided at the time of divorce. Besides the equity in the marital home, retirement plans are another major asset that a couple accumulates while married. Generally, the spouse who did not directly contribute to a pension plan is entitled to one half of the benefits earned during the marriage.
One way to divide retirement accounts in a divorce is through the use of a Qualified Domestic Relations Order (QDRO). Whether you can use this method to divide a retirement account depends on what type of retirement account it is. A qualified domestic relations order applies to qualified plans and 403(b) accounts, but not IRAs. If you aren’t sure what type of retirement plan your spouse has, take a look at your past tax returns. The W2 form reports any contributions made to a 401(k) or employer sponsored retirement plan. If your spouse is self-employed, check his Schedule C on your joint tax return. This will show if he has made any contributions to a retirement plan.
Another way to divide retirement accounts is through a divorce decree. When dividing IRA assets, the division is treated as a non-taxable transaction in the form of a transfer or rollover. The spouse who receives the assets must then treat those assets as her own, adding any future distributions into her income for the year the distribution takes place. The receiving spouse is responsible for paying income taxes resulting from later distributions. If an individual gives IRA assets to a former spouse without a court authorized divorce decree or separation agreement authorizing the change in ownership, the individual who owns the account must include the amount in his taxable income, as the transaction will be treated as a distribution to himself.
Type of Award
The division of retirement assets in a divorce can be allocated in different ways. Assets may be shared equally, or awarded in part or in full to one person. In equitable distribution states, marital assets are divided as fairly as possible. If a marriage lasted 20 years or more, the courts will usually try to divide the marital property equally. However, the courts can decide otherwise if there are extenuating circumstances. Retirement plans for which benefits accrued during the marriage are subject to equitable distribution. More often the split is 50-50. If a pension that is part of marital property is already in pay status and your spouse is currently receiving retirement benefits, the plan administrator may be able to pay your portion of your spouse’s pension directly to you. In a community property state, any assets earned by either spouse during the marriage belong to both. Marital assets, including retirement plans, are divided equally between them.
Amount of Award
Depending in which state you reside, any pension benefits that accrue after the divorce would belong to the spouse participating in the plan. However, in some states, an ex-spouse may be entitled to a share of the benefits that accrue in addition to the benefits accrued at the time of your divorce. As a rule, the spouse who is not participating in the retirement plan is entitled to the same rights under the plan as the participating spouse. These may include cost of living adjustments and early withdrawal options. The non-participating spouse is eligible to receive her share of the ex-spouse’s benefits at the time when the ex-spouse is entitled to receive benefits.