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My Spouse and I Are Divorcing. How Does This Impact Our Retirement Plan Accounts?

Retirement plans typically are considered fair game in a divorce proceeding. Whether you are giving up assets or receiving them, you need to be aware of the rules that govern the division of assets.

Your first line of defense in such legal matters is a tax professional with ample experience working on divorces. He or she should be intimately familiar with the rules that apply to qualified retirement plans, such as 401(k)s and 403(b)s, as opposed to individual retirement accounts (IRAs). Further, a tax professional or CPA will be able to guide you through the legal technicalities involved in ensuring that the tax bill associated with retirement plan distributions is divided in an amicable manner.


For Qualified Plans, Obtain a QDRO

For a qualified plan -- such as a 401(k) or 403 (b) -- you will need to make an application to the plan administrator to qualify a domestic relations order (DRO) with your divorce papers so that the nonparticipant spouse may receive benefits under the retirement plan. A qualified DRO (QDRO) recognizes the existence of an alternate payee's (e.g., a spouse's) right to receive a a portion of the participant's retirement plan assets.

By obtaining a QDRO, the participant spouse ensures that distributions under the order to the spouse or former spouse are taxable to that individual.

Get It in Writing

Generally, a QDRO must include the following information:1

  • The name and last known mailing address of the plan participant and each alternate payee
  • The name of each plan to which the order applies
  • The dollar amount or percentage of the benefit to be paid to the alternate payee or the manner in which such amount or percentage is to be determined
  • The number of payments or time period to which the order applies

A QDRO may not contain:1

  • A requirement to provide an alternate payee or participant with any type of form of benefit not otherwise provided under the plan
  • A requirement to provide for increased benefits (determined on the basis of actuarial value)
  • A requirement to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO
  • A requirement to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse

The plan must have reasonable, written procedures for determining whether a DRO is qualified and for administering distributions under any QDROs. Also, the plan's administrator must, within a reasonable period of time, complete its review of the QDRO documentation to determine whether it complies with plan requirements.

It's Different for IRAs

No QDRO is needed to transfer the assets in a traditional IRA to the other spouse. Moreover, the general rule is that no tax liability will attach to the transfer of such an interest to a spouse or to a former spouse if made under a decree of divorce or a written instrument incident to the decree. However, should the transfer of IRA assets occur outside of a court-approved divorce decree, the IRA owner will generally be left "holding the bag" with regard to taxes and any penalties associated with any distribution. (Other requirements apply.)


While on the surface, the division of retirement assets in a divorce proceeding may seem fairly simple, there are many legal "I's" to be dotted and "T's" to be crossed. Whatever the conditions, be sure to rely on trusted legal and tax professionals to help ensure that the best possible outcomes for all parties concerned.



1Source: U.S. Department of Labor, "QDROs -- An Overview FAQs," accessed March 23, 2017






This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

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