Many people believe that once their divorce decree is signed, everything has been settled. But what about your retirement plans?
Retirement accounts often represent one of the most valuable marital assets, yet they are frequently overlooked, mishandled, or misunderstood during and after divorce proceedings. This guide provides everything you need to know about dividing retirement plans, protecting your community interest, and ensuring your financial future is secure.
I have consulted with men/women who, after their divorce proceeding has been concluded, are surprised to learn that even though their divorce is final, and has been final for many years, there are still retirement plans that need to be divided. First, retirement plans generally involve two types of plans: 1) a defined benefit plan or 2) a defined contribution plan. The first is generally in the form of a pension, where, upon retirement, the participant will receive a defined monthly amount. The second type of retirement is generally in the form of a 401(k), 403(b), or the like. The participant will, while working, contribute a defined monthly amount to the plan.
It is odd to me that something so valuable sometimes gets so little attention. Many times, I will see a Judgment of Dissolution (the final decree in a divorce case) wherein the Judgment will have general boilerplate language dealing with the retirement plan. Either of these types of retirement plans can be extremely valuable. Sometimes the participant has participated in the plan for 10, 20, or 30 years. These are extremely valuable community assets, sometimes worth hundreds of thousands of dollars, yet they only get a brief mention that the court will reserve its jurisdiction (authority) to divide the plans. This means that while you may be divorced, the retirement plan still needs to be divided! Not a pleasant thought to be faced with: reopening an emotionally sensitive time in one’s life.
Further, this type of general boilerplate treatment may be jeopardizing a spouse’s community interest in the retirement plan. What do I mean? As mentioned, there are many different types of retirement plans: 401(k), 403(b), California State Teachers Retirement System (CalSTRS), Los Angeles County Employee Retirement Association (LACERA), Motion Picture Industry Pension and Health Plans, as well as various union retirement plans, federal retirement plans, and military retirement plans, to name a few. What is extremely important to note is that some of these plans, after a Judgment of Dissolution is granted, do not have any protection for a former spouse as to their community interest. In other words, if there is a Judgment of Dissolution, and the participant spouse predeceases the former spouse, the former spouse may lose his/her right to their interest.
These types of risk can easily be eliminated by getting the proper order (usually called a Domestic Relations Order) in place at the time of the Judgment of Dissolution. Thus, don’t risk your interest in a community retirement plan; hire the right attorney so your future financial security is protected.
There are two primary types of retirement plans to understand:
A Qualified Domestic Relations Order (QDRO) is a court-approved legal document that directs a retirement plan administrator to divide assets following a divorce settlement.
Different U.S. states follow different legal doctrines:
The most common and dangerous misconception is that a divorce decree is sufficient to divide retirement assets.
Statutes of limitations vary by jurisdiction; act immediately post-divorce to avoid forfeiture
Here’s what to do if you or your ex-spouse has a retirement plan:
Yes, but it depends on the plan. Some accept QDROs anytime before retirement or death, while others may deny late claims.
You can request the court to issue a motion to compel or join the plan as a party.
No, they follow separate federal statutes. Use forms under the USFSPA (Uniformed Services Former Spouses’ Protection Act).
Yes, IRAs can be divided under a divorce decree or property settlement and transferred via direct rollover to avoid taxes.
You may lose all benefits unless survivor benefits were elected before retirement or death.
A finalized divorce does not automatically divide your retirement accounts. Delays, incorrect filings, or a lack of awareness could cost you hundreds of thousands of dollars in lost retirement benefits.
Don’t let paperwork derail your financial future.
Secure your QDRO and protect your interest in community retirement assets.
Need help today? Visit DivorceDigest.com to get matched with legal experts in divorce and retirement division.