Some financial aspects of divorce can be highly complicated, as many people have complex assets and property they need to divide in an equitable manner. One type of asset that needs to be divided is retirement accounts, and this can be particularly complex for many reasons, including the paperwork that needs to be completed and filed. You want to have an experienced attorney handling your case if you and/or your spouse have certain types of retirement account you will need to address.
The following are some common questions about the division of retirement benefits in divorce and the specific paperwork needed, which is called a Qualified Domestic Relations Order (QDRO). For specific questions about your circumstances or additional information about the divorce process, contact our Annapolis Qualified Domestic Relations Order attorney directly.
If you have your own retirement account through your employer, or your spouse has one through their employer, you might wonder why you do not get to simply keep the benefits that are only in one spouse’s name. Retirement accounts are funded by deductions from your paycheck, so those funds are considered to be income. When you are married, the income you earn is considered to be marital property, which must be divided in a divorce.
You might have many different investments, savings accounts, and other assets that you have to divide, so why are retirement accounts different?
You can withdraw from many bank or investment accounts with little to no penalty, which provides easy access to these assets for their division. Retirement accounts, however, can have steep penalties and tax liabilities for early withdrawals or distributions. To avoid these costly penalties, you likely want to keep your retirement funds in their accounts for years after a divorce.
If you move on with your lives after divorce, how can you expect you or your ex-spouse to willingly hand over a portion of their benefits once they begin receiving them at retirement age? The good news is that forms such as QDROs allow you to divide retirement benefits in divorce while avoiding the usual tax liability or penalties.
As mentioned, a QDRO refers to a Qualified Domestic Relations Order, which is a special kind of court order that can be included in your final divorce settlement or decree. Not every divorce will involve a QDRO, but if you or your spouse has a retirement account, your case will likely involve this type of document.
A QDRO establishes that a spouse has the right to receive a specific portion of a retirement account belonging to another person – their divorcing spouse. The QDRO should properly instruct the administrator of the retirement account to pay the predetermined portion directly to the spouse who is not on the account.
The predetermined amount might be a specific dollar amount or a percentage of the benefits available. These calculations should always be conducted by an experienced QDRO attorney who can ensure that your rights and interests are upheld and preserved in the QDRO issued by the court.
You always have the option to start your own independent retirement account (IRA). However, millions of people have retirement plans or pension plans that are sponsored by their employers. These plans are overseen by the Employment Retirement Income Security Act (ERISA), which has strict provisions regarding the distribution of benefits.
Accounts that can be subject to ERISA include:
While Maryland law typically governs the division of marital property in a divorce, federal law will come in when a divorce involves such employer-sponsored accounts.
ERISA requires that plan administrators only distribute benefits to plan participants and their named beneficiaries. If one spouse is a plan participant, chances they would be willing to make their former spouse a beneficiary are low. This means that a former spouse would not have access to the retirement benefits down the road under the law.
There is an exception, as ERISA allows former spouses (and select other parties) of participants to receive a specified share of benefits if a court issues a QDRO to the plan administrator. The law sets out specific requirements for the QDRO in order for it to be effective. The order should, among other things, specifically set out the amount to be paid from the participant’s account to the alternate payee.
At first glance, a QDRO might not seem all that complicated. However, it is important to note that there should not be a one-size-fits-all approach when it comes to drafting a QDRO. Each case is different, and the long-term financial and legal implications of specific QDRO provisions should be carefully considered, given the circumstances of each case.
There are also strict rules regarding QDROs under the law, and these laws can change. Different requirements apply to different types of plans. Not paying attention to details or not tailoring QDROs to the specific situation at hand can result in the improper distribution of retirement benefits and other losses.
QDROs go hand-in-hand with divorce, so many divorce attorneys are adept at completing these documents thoroughly and properly. However, some attorneys will seek assistance from their professional networks from someone who focuses on QDROs and related matters. In either situation, you want to make sure you have a skilled professional completing your QDRO, and you should always seek help from an Annapolis QDRO attorney if you or your spouse have employer-sponsored retirement plans.
There are two basic options for deciding the division of retirement accounts – you and your spouse can reach a settlement agreement out of court regarding property division, or the court will decide for you. In most cases, it is best to try to reach a settlement whenever possible to prevent the expense, time, and uncertainty that can come with litigation.
Your divorce lawyer will work closely with you and your spouse’s attorney to try to negotiate a property distribution settlement, which would have to address retirement plans. If negotiation is unsuccessful, you and your spouse might participate in mediation. If you still cannot reach a settlement agreement through mediation, the family court will review all arguments and evidence presented by each of your attorneys and decide how to equitably divide all of your marital property
It is important to recognize that even with retirement plans, you still might be able to avoid having QDRO, as there might be other options available to divide your property. For example, your spouse has a retirement account, they could possibly buy out your share of the benefits. You might receive a larger portion of other property in exchange for giving up your right to retirement benefit distributions. This would eliminate the need for a QDRO.
In order for a buyout to be fair and equitable, you must have full knowledge of the portion of the benefits you would have received under a QDRO. Your attorney can determine this and advise you whether a buyout or QDRO is most beneficial in your situation.
Like many aspects of divorce, distributing retirement plans and other complex assets can be a complicated process that involves formulas and specific court orders. You want an Annapolis Qualified Domestic Relations Order attorney on your side who knows how to take on this type of matter and protect your property interests. The Law Office of Patrick Crawford can help, so please call (410) 216-7905 or contact us online today.