Dividing Retirement Accounts in Divorce

One of the most complex and contentious issues when a marriage is ending can concern the division of retirement accounts. While certain marital assets can be easily distributed between spouses, dividing retirement accounts such as pensions, IRAs, and 401(k)s can be much more complex. In addition, different types of orders may be required to divide the assets. If retirement accounts are an issue in your divorce, it’s essential that you understand your legal rights and take the necessary measures to protect your financial interests.

Are Retirement Accounts Subject to Division in Divorce?

Missouri follows the doctrine of equitable division when it comes to dividing property in divorce. This does not necessarily mean that property will be divided equally (although that is usually the case unless there has been an extended period of separation or other unique situations). However, only marital property is divided in divorce. Not to be confused with separate property (which belongs to the original owner), marital property includes any assets that were acquired during the course of the marriage. This includes any portion of retirement accounts and assets that were acquired by the marriage by either spouse.

Retirement assets that can be divided in divorce may include the following:

• Pensions — A pension is an employee benefit plan that provides monthly retirement income. Most pensions can be divided in divorce for any amount that was acquired during the marriage.
• IRAs (including simplified employee pension IRAs and Roth IRAs) — An IRA is an account that is set up with a financial institution to allow a person to contribute funds toward retirement, tax-free and on a tax-deferred basis. IRAs can be divided through a court order or by transferring one spouse’s share into an IRA account in the other spouse’s name.
• 401(k) and 403(b) accounts — A 401(k) is a retirement savings plan sponsored by an employer. Part of each paycheck is taken out prior to taxes being paid and placed into the account. A 403(b) account is a type of retirement plan for specific employees of public schools and nonprofits. Both types of retirement plans can be divided in divorce for the amount that was earned during the marriage.
• Employee stock options — Employee stock options are granted to certain employees as part of their benefits package. This allows them to buy shares in the company at a predetermined price. As long as the stock option was acquired during the course of the marriage, they can be divided in divorce.
• Life insurance accounts — When a married couple has a life insurance policy, they usually name each other as beneficiaries. In divorce, the policy may either be divided between the spouses or traded for another asset.

If a spouse’s retirement plan is provided by the Public School Retirement System, most benefits accumulated through it are not subject to division in divorce. Additionally, dividing retirement accounts in divorce may not be necessary if a prenuptial or postnuptial agreement was put into place. In such cases, the prenup or postnup would specify how the retirement assets should be handled, and whether they are treated as marital or separate property.

How are Retirement Accounts Divided in a Divorce?

Certain retirement accounts, such as 401(k)s, 403(b)s, and other “qualified” plans can be divided using a Qualified Domestic Relations Order, also referred to as a “QDRO.” This document informs the plan administrator that they must pay a portion of the retirement plan to the non-employee ex-spouse. A pension can also be divided with a QDRO that will inform the plan administrator to make separate payment to each the employee who has retired and their former spouse, once the employee has reached retirement age.

However, in some instances, the division of retirement accounts does not require a QDRO. For example, most IRAs can be divided without one. In these cases, the plan administrator will need you to provide a copy of the judgment that divides the plan, and you will then have to sign documents that complete the division. A QDRO also cannot divide a retirement plan offered through the federal government — instead, the court must sign a Court Order Acceptable for Processing (COAP). Retirement plans offered through the State of Missouri are divided between spouses using a Division of Benefits Order (DBO). Regardless of exactly how a retirement plan can be divided, both parties to the divorce and the court must have accurate information about the plan in order to complete the division.

What Goes into a QDRO?

When dividing retirement assets in divorce for a plan that requires a QDRO, it’s critical to understand that there are certain criteria that must be met. In order to be recognized as a QDRO, the order must be a domestic relations order. The document must include the names of both spouses, the mailing addresses of both spouses, the amount each spouse will receive, the time period covered by the QDRO, and which plan it applies to.

A QDRO can be drafted as part of the final divorce trial entry or as part of a divorce settlement. However, it’s usually a separate document from the divorce judgment. Notably, many retirement plans charge an administrative fee to review and approve the QDRO. The fee is typically taken directly from the plan being divided.

Contact an Experienced Missouri Divorce Attorney

Dividing retirement assets in divorce can be complicated. It’s important to have a knowledgeable divorce attorney who can guide you through the property division process and protect your rights every step of the way. Divorce and family law attorney Mark A. Wortman provides skillful counsel and reliable representation to clients in the greater Kansas City, Missouri area for divorce and asset division matters. To schedule a confidential consultation to learn how he can help, please contact Mark online online or by calling (816) 523-6100.