Divorce and Retirement Planning
Divorce can be a painful and life changing experience. It can affect your plans for the future in unseen ways. In order to prevent you from being left with nothing, there are many things to plan and divide up during a divorce. Amongst all the difficult decisions and painful choices, dividing retirement plans can be one of the trickier things to negotiate. Nonetheless, retirement plans are often one of the largest and most important assets that couples have so they must be dealt with properly. This means having a deep understanding of what each party is legally entitled to, and probably hiring a qualified lawyer to help figure out the details.
Entitlements and Actually Receiving Them
There are many different types of retirement plans and each of them is treated differently under the law. If your spouse has a 401 (k) or similar employer-sponsored retirement plan, you are entitled to part of the sum as part of the divorce settlement. The difficult thing about this entitlement is actually getting your spouse’s retirement fund to pay you the money. There is little to ensure that the fund won’t just give all the money to your spouse. That’s why it’s important to get a court order such as a Qualified Domestic Relations Order or QDRO.
A QDRO is a judgment or court order that will tell the retirement fund how to distribute the money. In other words, obtaining a QDRO means the court will tell your spouses retirement fund that it must pay you your fair share of the money. QSROs can also help with alimony, child support, and property division in addition to retirement funds. It’s important to get a QDRO because it will provide protections that go beyond what is guaranteed by your divorce settlement. Your settlement may provide you with rights, but the QDRO is the muscle that makes sure you get paid!
You can obtain a QDRO for any retirement plan that is tax-qualified by the IRS and covered by the Employee Retirement Income Security Act or ERISA. In order to make sure that your Domestic Relations Order is qualified, you need to have it approved by both the retirement plan’s administrator as well as a court of law. Once this is done you can rest easy that your share of the retirement fund is secure. Unfortunately, these protections are not available for military pensions or other government pensions because they are governed by a different set of rules.
Defined contribution plan payout timings will be determined by each individual plan. This could mean getting a lump sum right away or monthly payments over a period of time. Many pension plans and defined benefit plans will often pay out monthly payments once the retirement age is reached.
Non-community Incomes
There are some retirement incomes that are not eligible to be split in divorce. These funds are viewed as individual and are not required by law to be split at the time of separation. These incomes include individual social security incomes, military injury compensations, and workers compensation payouts.
Get Professional Help!
These domestic orders can be confusing and it’s important to get them right. You are managing your future and so you don’t want to mess it up. A qualified attorney with a wealth of experience will help to sort out the intricacies of your settlement as well as make the whole process easier by filing on your behalf and doing a lot of the legwork for you. It’s important to get an attorney who is experienced in these matters not only because the stakes are so high but also because an inexperienced attorney will have to spend more time doing research and will therefore cost you more in legal fees.
Dividing the Pie
There are basically two ways to divide retirement monies in divorce. The first is called present day valuation buy-out where the spouse with the retirement plan would be forced to cash out the retirement plan at its present value and then divide the result. The second option is called division into two accounts. In this method one spouse may have to transfer a chunk of their retirement savings to the other spouse’s account. In either case it is advisable to hire a qualified professional to oversee the process.
Entitlements and Actually Receiving Them
There are many different types of retirement plans and each of them is treated differently under the law. If your spouse has a 401 (k) or similar employer-sponsored retirement plan, you are entitled to part of the sum as part of the divorce settlement. The difficult thing about this entitlement is actually getting your spouse’s retirement fund to pay you the money. There is little to ensure that the fund won’t just give all the money to your spouse. That’s why it’s important to get a court order such as a Qualified Domestic Relations Order or QDRO.
A QDRO is a judgment or court order that will tell the retirement fund how to distribute the money. In other words, obtaining a QDRO means the court will tell your spouses retirement fund that it must pay you your fair share of the money. QSROs can also help with alimony, child support, and property division in addition to retirement funds. It’s important to get a QDRO because it will provide protections that go beyond what is guaranteed by your divorce settlement. Your settlement may provide you with rights, but the QDRO is the muscle that makes sure you get paid!
You can obtain a QDRO for any retirement plan that is tax-qualified by the IRS and covered by the Employee Retirement Income Security Act or ERISA. In order to make sure that your Domestic Relations Order is qualified, you need to have it approved by both the retirement plan’s administrator as well as a court of law. Once this is done you can rest easy that your share of the retirement fund is secure. Unfortunately, these protections are not available for military pensions or other government pensions because they are governed by a different set of rules.
Defined contribution plan payout timings will be determined by each individual plan. This could mean getting a lump sum right away or monthly payments over a period of time. Many pension plans and defined benefit plans will often pay out monthly payments once the retirement age is reached.
Non-community Incomes
There are some retirement incomes that are not eligible to be split in divorce. These funds are viewed as individual and are not required by law to be split at the time of separation. These incomes include individual social security incomes, military injury compensations, and workers compensation payouts.
Get Professional Help!
These domestic orders can be confusing and it’s important to get them right. You are managing your future and so you don’t want to mess it up. A qualified attorney with a wealth of experience will help to sort out the intricacies of your settlement as well as make the whole process easier by filing on your behalf and doing a lot of the legwork for you. It’s important to get an attorney who is experienced in these matters not only because the stakes are so high but also because an inexperienced attorney will have to spend more time doing research and will therefore cost you more in legal fees.
Dividing the Pie
There are basically two ways to divide retirement monies in divorce. The first is called present day valuation buy-out where the spouse with the retirement plan would be forced to cash out the retirement plan at its present value and then divide the result. The second option is called division into two accounts. In this method one spouse may have to transfer a chunk of their retirement savings to the other spouse’s account. In either case it is advisable to hire a qualified professional to oversee the process.