Retirement Accounts, Pension Plans, and QDROs
Aside from the marital home, retirement accounts, pension plans, and QDROs tend to be some of the most significant asset-related issues that arise during a divorce. While going through a divorce, you may be concerned about losing your retirement savings, thereby affecting your long terms planning for years down the road. The time that you acquired your retirement assets determines what portion will be considered marital and how proceeds will be split during a divorce. If your retirement accounts, including tax-deferred assets like an IRA, a pension plan, or a profit-sharing plan, are marital property there is a high likelihood your spouse will receive a portion of the equity therein. At Plog & Stein, P.C., our Denver property division lawyers represent clients in all aspects of property division, including retirement accounts, when going through a divorce. Let us help you.
Retirement Accounts, Pension Plans, and QDROs During a Divorce
Retirement funds may be defined benefit plans or defined contribution plans. The former, generally referred to as “pensions,” are plans in which your employer has promised to pay you a benefit when you reach retirement age. The employer contributes to the plan, and you might as well, depending on the terms of the specific plan. The benefit is usually based on years worked for the employer and average income, and the benefits may provide a steady stream of income until you die. The defined contribution plans are retirement plans in which you have your own account with a certain sum of money in an investment account, such that the investments grow and build. With these types of plans, generally, both you and the employer contribute, with the employer often matching your contributions. Included in this type of plan are profit-sharing plans, 401(k) plans, and Individual Retirement Accounts (IRAs). Sometimes the entire plan is marital property, but sometimes only part of it was accumulated during the marriage, so there may be a separate property portion that is not subject to division.
After the value of the marital portion of the retirement accounts is determined, your spouse and you can negotiate over how to divide the accounts, or you can have the court make this decision for you. Either way, it is crucial to retain a divorce attorney so that you are fully abreast of what is fair and how the division of these types of accounts work. Valuation of a pension and a defined contribution plan involve different methodology and understanding the differences is important. The actual division also matters, as there can be tax and penalty consequences if the division is not done correctly.
Generally, all withdrawals and transfers of retirement assets are subject to a penalty of 10% for early withdrawal when the plan participant is under age 59 1/2. However, transfers incident to a divorce are not taxable pursuant to I.R.S. Code. For purposes of dividing either a pension or defined contribution plan, the transfer is generally done using a Qualified Domestic Relations Order (QDRO). The QDRO is a court order signed by a judge that divides qualified retirement accounts during a divorce and must be accepted by the administrator of the retirement plan, presuming it maps up with the dictates of the plan. The QDRO will be very detailed and needs to follow federal tax laws and be free from mistakes and inaccuracies. Dividing funds from an IRA incident to a divorce is also a non-taxable event, though division is usually accomplished via rolling funds from the participant’s account into an IRA set up for the recipient. From there, the receiving spouse is free to do what he or she chooses with the proceeds.
Usually, defined contribution plans and IRAs may be valued easily, as monthly statements reflect the value. Pensions are generally going to be divided via a formula, which accounts for years of years of marriage mapped up with hears of service. This formula alleviates the need for a formal valuation and the receiving spouse gets paid when the participant gets paid. In some cases, it may be advantageous to obtain a present valuation of a pension, via an expert, particularly when there are other offsetting assets.
Certain retirement accounts, such as PERA, will not permit you to split a retirement account by force. In these instances, an experienced family law attorney in Denver can look at alternatives to making sure you are compensated in one form or another, even if an actual division does not occur.
Consult a Denver Lawyer During the Property Division Process
At Plog & Stein, our Denver attorneys are ready to meet our clients’ needs in connection with retirement accounts, pension plans, and QDROs. We can advise you on how to divide important retirement assets and make sure that you are protected appropriately in the separation agreement and QDRO. Our retainer rates are competitive. Contact Plog & Stein, P.C. at (303) 781-0322, or use our online form to set up an appointment with a divorce attorney in Denver. We also represent people in Aurora, Centennial, Highlands Ranch, and Castle Rock, as well as other areas of Denver, Douglas, and Arapahoe Counties.