Retirement funds are often the largest assets in a divorce case. People who have spent decades contributing to a retirement plan have often accumulated thousands of dollars of savings into their 401(k) plans, pension plans, or other savings program.
These types of plans can be very complicated. Most plans do not allow the owners to change how the plan will be distributed or change the beneficiary without a court order known as a Qualified Domestic Relations Order (QDRO) authorizing the changes. The retirement or pension administrators will follow the directions contained in the QDRO to the letter. As a result, drafting an effect QDRO takes the help of a skilled and knowledgeable family law attorney.
The biggest issue when dividing retirement plans is often the problem of taxes. If a divorcing couple decides to split the money in the account before the account is eligible for distribution, the couple will likely incur thousands of dollars in fees and penalties. By dividing the account early as part of the divorce, each individual stands to lose money.
The solution to this problem is a well-drafted QDRO. These orders can make changes or distributions while keeping the money in the plan, avoiding the tax consequences.
The way that the QDRO is written is important and they require specific language to do what you intend. For instance, if a couple decides to split an account equally, they need to determine what that means. If an account is worth $100,000 today, the husband may agree to give the wife $50,000 at the time the plan comes into effect.
However, suppose the account decreases in value. If the account is only worth $50,000 at the time the spouses reach retirement age, the language in the QDRO may entitle the ex-wife to the entire $50,000 in the account. It is important to make sure that the language in your QDRO gives you exactly what you intended in all circumstances.
Additionally, divorcing couples should be sure that their QDRO is specific to their particular type of retirement accounts. Different plans have different options and penalties, and a one-size-fits-all QDRO is often not sufficient to completely cover all types of accounts.
At Ashby Law, our attorneys understand these complicated orders. If you and your spouse are divorcing with significant retirement assets between you, it is important to trust your financial future to attorneys who are experienced in this area of the law. Contact our office today by calling 509-572-3700 and learn more about how we can help you.