Post Divorce Division of Retirement

Dividing retirement accounts post-divorce requires follow-up work and careful implementation to ensure the divisions in the decree are completed accurately and completely without delay.  

Non-Qualified Plans

Typically easier to divide than qualified plans because they do not require a separate court order.

Division is carried out using a certified copy of the divorce decree and the completion of any specific paperwork required by the financial institution.  

Here are the typical steps for dividing non-qualified retirement plans:

1. Obtain a Certified Copy of the Divorce Decree
2. Contact the Plan Administrator
3. Complete Necessary Paperwork
4. Transfer Funds

The funds are typically transferred directly from the original IRA to a new or existing IRA in the receiving spouse’s name, ensuring that the transfer maintains its tax-deferred status.

Qualified Plans and QDROs

Dividing qualified retirement accounts such as 401(k)s, pensions, and other employer-sponsored plans during a divorce requires a Qualified Domestic Relations Order (QDRO).

Here are the typical steps involved in dividing qualified retirement accounts with a QDRO:

1. Consultation and Drafting
2. Drafting the QDRO
3. Pre-approval or Approval
4. Plan Administrator Review
5. Implementation of the QDRO

There may be fees associated with the division of qualified retirement

Alternate Payee can cash out some retirement without penalty (subject to income tax)

Valuation Date

Determines the exact point in time at which the retirement plan’s assets are valued for division between the parties.

Can significantly affect the amount each party receives, especially in accounts where the balance fluctuates due to market performance or contributions.

Whatever the agreed upon valuation date is, if it is included in the decree and then the documents implementing the retirement division, the funds transferred will be adjusted for gains and losses as if the division occurred on the valuation date.