After decades of marriage, a couple shares almost everything. In Washington State, a couple who divorces after a lengthy marriage will also have to split nearly everything, including pension accounts. Because Washington is a community property estate, any money earned in a pension or retirement account during a marriage is considered joint property of the couple.
Splitting Retirement Accounts
Fairly splitting a pension or retirement account is often a sticking point in divorce negotiations for many older couples. In the easiest cases, both partners may have their own retirement or pension account, and each may decide to keep his or her own account and relinquish any claim to the other person’s. This usually happens when both pension or retirement accounts are relatively equal in value.
When pensions are not close in value, the person who owns the larger account may decide to give his or her spouse a different asset in order to make up for the value of the account. For example, if a wife’s pension account is worth $20,000, but her husband’s pension account is only worth $10,000, she may decide to allow her husband to keep a vehicle worth $10,000 rather than worry about splitting up her pension. This reduces the amount of paperwork and hassle required to finalize the divorce.
If there is no way around splitting up a pension or retirement account, the judge will have to enter an order called a QDRO, which will allow employers as well as state and federal agencies to release funds from the pension or retirement account at a designated time.
Qualified Domestic Relations Orders (QDROs)
Most pensions are managed by either the Employee Retirement Income Security Act (ERISA) or the Internal Revenue Service (IRS). Both types of pensions are managed by the federal government, who will not release any pension funds without first receiving a Qualified Domestic Relations Order (QDRO) from the divorce court.
These orders will divide up a pension or retirement account according to the length of the marriage and the program’s applicable rules. Dividing up a pension account is complicated because the spouse without the account is only eligible to receive half of the money the account earned during the marriage, not before the marriage occurred. Additionally, removing money from a pension or retirement account is fraught with tax implications, and the financial penalties for removing money early can be steep. In addition, some types of accounts do not allow early withdrawals at all, and many divorcing spouses must reach a certain age (usually 65) before any pension or retirement funds are released.
In order to accurately come up with a value for a pension or retirement account, most attorneys will enlist the help of an accountant or other financial professional who can calculate which parts of the account are considered marital property, as well as the most financially sound way to withdraw the funds during or after the divorce.
Because splitting up the assets in a retirement fund is so complicated, it is important to have it done correctly. Having to fix a mistake in a QDRO years later can be a costly, time consuming, and frustrating experience. At Ashby Law, our Washington family law attorneys understand the rules that govern retirement plans, and will create a QDRO that is done right the first time.
If you are contemplating a divorce or separation, and want learn more about how your pension plan may be affected, call Ashby Law today at 509-572-3700.