Dealing with retirement and pension accounts in divorce

Although the divorce rate has remained relatively stable in recent years, there is one demographic for which divorce remains on the rise: baby boomers. In fact, the divorce rate among people over 50 has doubled in the last two decades, and now a member of this age group is involved about one in every four divorce filings made in Las Vegas and throughout the U.S.

As such, retirement accounts and pension plans are quickly becoming one of the most contested items in divorce and asset division negotiations. Of course, this isn’t unique to people over 50 – retirement accounts can make up a significant portion of a couple’s net worth, especially in the current economic climate. Therefore, it is important that these accounts are divided fairly to ensure that each spouse has sufficient financial resources for their retirement.

In general, retirement funds that are added during the marriage, whether through personal contributions or employer matching, are considered to be marital property. Therefore, those funds can be divided among the spouses upon divorce.

There are a few considerations for doing so, however. The division of a 401(k) plan, as well as many pension plans, requires the creation of a Qualified Domestic Relations Order (QDRO). This document will instruct the plan’s administrator on how to distribute each spouse’s portion of the benefits. It is important to note that most IRAs and SEPs, as well as federal, state and local government pension plans generally do not require a QDRO.

The QDRO should be created before the divorce is finalized in order to ensure timely processing and payment. A family law attorney can provide more information about this important process.

Source: Forbes, “How Divorcing Women Should Handle Retirement Accounts and Pension Plans,” Jeff Landers, June 13, 2012