Divorce and Retirement Benefits
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How Does Divorce Affect Retirement Benefits?
In a divorce setting, it’s common knowledge that marital or community property will need to be divided equally between the two parties. However, for intangible assets like retirement benefits, it may not be as clear in terms of how they are to be distributed upon divorce.
In general, most jurisdictions classify retirement benefits and pensions as marital assets. Thus, they are subject to an equal distribution between the parties upon divorce. The main requirement is that the retirement benefits were earned during the course of the marriage. Retirement benefits that are accrued before the marriage, or after the divorce was filed, are generally held to be separate property. However, a few states classify retirement benefits earned a few years before the marriage as marital property.
What Is a Qualified Domestic Relations Order (QDRO)?
A qualified domestic relations order (QDRO) is used during divorce to formally allow a spouse to receive part of the other spouse’s retirement benefits. QDRO’s are usually included within other legal documents associated with the divorce.
The party receiving the benefits is called the “alternate payee”. QDRO’s may have various tax consequences for both parties. For example, the alternate payee is also responsible for paying taxes on the retirement benefits they receive from their former spouse. A QDRO is generally not needed for IRA’s.
Requirements- a valid retirement benefit QDRO must:
- Comply with state laws, including community property principles
- Include provisions addressing spousal or child support in relation to the retirement benefits
- Create (or recognize) the alternate payee’s rights to receive all or some of the retirement benefits
- Specify the following information:
- Names and addresses of both parties
- The percentage of the benefits to be paid to the alternate payee
- The number of payments or payment periods covered; and
- Which retirement plans are covered by the order
Thus, QDRO’s need to be very specific in order to be valid. If any of the requirements are not met, a request for a QDRO will likely be denied.
When Is a QDRO Not Valid?
There are many other circumstances in which a QDRO might not be considered valid. For example, a QDRO cannot:
- Require the retirement plan to pay increased amounts than are stated in the plan
- Require the benefits to be paid to a new or different alternate payee
- Require any benefits to be paid that are not otherwise part of the retirement plan (although some IRS Code provisions make exceptions for early retirement benefits)
Also, a QDRO is not valid if it was obtained through the use of coercion, fraud, deceit, or misrepresentation. Violations of a valid QDRO by any party may lead to legal consequences.
Do I Need a Lawyer for Assistance with Divorce and Retirement Benefits?
Retirement benefits are often contested during divorce proceedings. If you have any questions or concerns involving divorce and retirement benefits, it’s in your best interests to hire a family lawyer for advice. Your attorney can help determine how divorce will affect retirement benefits, and can explain how the laws in your area work. A competent attorney can represent you during court proceedings to ensure that your interests are met.
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Last Modified: 01-22-2015 02:04 PM PST
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