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QDROs: a valuable tool for dividing retirement plans in divorce

Intangible assets, like retirement accounts, may be easier to overlook in a divorce than real property or other tangible property items. Yet by one commentator’s estimate, they constitute the second largest asset category in divorces, after real estate. For that reason, it is important not to overlook 401(k) plans, pensions, and other retirement assets when discussing property division in a divorce.

Another reason why it is important to address retirement assets in divorce negotiations is a federal law called the Employee Retirement Income Security Act of 1974. ERISA generally prohibits an employee or retiree from assigning away his or her benefits in a private retirement plan, with the exception of a divorce. With a qualified domestic relations order, or QDRO, an individual can assign retirement benefits to a spouse, child, or other dependent. The assignment can be partial or full.

An attorney with experience in complex asset divisions can remind clients to remember these assets in their divorce negotiations. An attorney can also provide valuable assistance for navigating the complexities of retirement plan divisions. For example, a pension that will pay lifetime benefits must be properly valued. Although retirement benefits earned during the marriage may qualify as divisible marital property, the employee may have been earning benefits before the marriage. State law may also use the date of the divorce as the cutoff for any accumulated marital assets.

Ideally, a couple will be able to negotiate property division terms outside of court, with the assistance of their attorneys. Court involvement is not only costly, but could result in a division that the parties may find unfavorable. Our family law and divorce law firm can advocate for your best interests in this and other areas of property division negotiations.

Source: “QDROs: The Division of Retirement Benefits Through Qualified Domestic Relations Orders,” copyright 2014, U.S. Department of Labor

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