Divorce and retirement: Frequently asked questions

by Attorney Charma Pipersky
Partner, Divorce Helpline

Also see
Retirement funds: What you don’t know can hurt you

In the divorce, what if we don’t mention our retirement plans?

Big mistake! Depending on your state’s laws, the marital interest in the retirement plan could be considered an “omitted asset.” At any time in the future, your marital agreement and your judgment could be set aside and an action could be brought to divide the community interest. If you don’t want an uncertain future and the threat of litigation forever after, be sure to list the plan as an asset and deal with it correctly in your divorce action.

As if that’s not enough, it is also possible that when you retire, your plan administrators could refuse to distribute pension assets until your ex-spouse signs off on the distribution of assets.

I have a pension plan and my spouse has Social Security, so why do I have to give my spouse part of my retirement?

Each state has its own rules. In many states, the non-employee spouse is regarded as a full partner, meaning that he or she already owns an interest in that part of the pension plan that was accumulated during the marriage. Social Security is a federal program administrated under its own rules, not subject to state laws.

Does the retirement plan have to be valued? I have a statement showing the value of the retirement plan; isn’t that good enough? Why should I pay to have it valued?

What you really need to know is the value of the marital property interest in each fund — the value that was accumulated during the marriage. This is the amount that has to be divided as part of your settlement agreement.

If your plan is a tax-deferred savings plan — like an IRA, SEP or 401(k) — then the statement showing the balance accumulated in the plan is probably accurate, but it will not show the community property interest. You can figure out this amount with some careful calculation.

For plans where you have to wait until a certain age or number of years of employment, then the correct value is probably not the same as the figure on your statement. It is often worth much more, but it takes an expert to say how much. An expert is also needed to determine the correct value of the marital property interest in this type of plan.

Would it be better to divide the pension plan or trade for another asset worth half of the community property interest?

The answer to this question depends on your situation:

How soon each spouse will be ready to retire

Other income and assets available to each spouse for retirement

How the taxes of each spouse will be affected.

Before deciding, you should get advice from a family law attorney.

In California, call Divorce Helpline, otherwise see Who Can Help?

I want to keep my full retirement. How can I do this?

Trade the non-employee spouse for something of equal value to that spouse’s share of the marital interest in the retirement fund. If this can be negotiated, then the fund doesn’t have to be divided at all, but can be awarded entirely to the employee spouse.

Do I need to join the pension plan in my divorce? What if I don’t?

You need to join the plan if you might decide to divide the marital property interest rather than trading the non-employee spouse something of equal value. If you don’t formally join the plan to your action, you can’t count on the plan knowing the terms of your divorce agreement or Judgment and there’s nothing to prevent them from distributing assets contrary to your intentions. To protect the non-employee spouse and to avoid the possibility of future confusion and litigation, you should always join your pension plan as a party to your divorce unless you know for sure that the employee spouse will keep it all.

What is a QDRO? Do I really need one? What can go wrong if I don’t get one?

QDRO means Qualified Domestic Relations Order, which is what you call the order made by the court to a pension plan (see above) telling it to follow the terms of your divorce Judgment.

It is very important to have a QDRO whenever you divide a community interest in any pension plan, 401k or annuity. If you don’t get a QDRO, there’s no way to be sure the plan will follow the terms of your Judgment. Two different plans require two joinders and two QDROs. One plan with multiple parts may require more than one QDRO. Divorce Helpline can help you with this no matter what state you live in.

Is a QDRO something I can do myself?

No. A QDRO is very technical and not easy to draw up. It also has to be negotiated with and approved by the plan administrators. If a retirement fund is divided incorrectly, the parties could get hit with a big (unnecessary) tax bill. Plans are generally not interested in helping the non-employee spouse and can be difficult for any lay person to deal with. We advise you not to do your own QDRO. Many family law attorneys send this kind of work out, thus raising your cost. Divorce Helpline can help you with QDROs no matter what state you live in, otherwise call around, ask some local accountants who they recommend for this kind of work.

Is there some way to avoid having a QDRO?

Yes. Trade the non-employee spouse something of equal value to that spouse’s half of the community interest. If this can be negotiated, then the fund doesn’t have to be divided at all, but can be awarded entirely to the employee spouse. However, whether or not this is wise or fair in your particular situation is a subject for expert advice that takes into account all the facts in your case.

Will I be able to get my share of the retirement plan now or do I have to wait until the employee-spouse retires?

This depends on the plan and its rules. In most plans, the non-employee spouse can have ownership of his or her share immediately. But watch out! Anyone below retirement age will pay income taxes and also pay penalties on withdrawn funds unless the funds are very carefully and correctly rolled into an IRA account via a QDRO.