Family Law Attorneys

Dividing Retirement Accounts During Divorce

When married couples get divorced, they generally have to divide their assets, whether that involves their bank accounts or the ownership or physical properties, such as homes. One important area to consider is the division of retirement accounts, especially for older couples who are closer to retirement age or who are already retired. How much a person has saved up for retirement will determine the stability of his or her future—whether that person will be able to pay for his or her basic needs and how comfortable the person will be.

For that reason, it is extremely important that individuals understand the process of retirement account divisions and that they carry out the process correctly. This will likely require the assistance of a knowledgeable divorce attorney.

In many instances, couples might need to obtain a Qualified Domestic Relations Order (QDRO), which allows for the division of benefits of a pension plan or retirement plan, such as a 401(k). The order mandates the benefits plan administrator to award the funds to one person or to divide them between both parties of a divorce once the employee become eligible to receive those benefits. The benefits can be used to provide spousal support, child support or the support of another dependent. The order will specify the dollar amount or percentage that is to be paid to each person in the divorce, as well as the applicable time period.

There are many important points an individual in this situation must consider. Some of those include possible tax penalties, whether the former spouse has borrowed money against his or her 401(k) plan, and whether funds that are contributed to the plan after the divorce can be included as part of the order.

Typically, only benefits contributed during an actual marriage can be divided between both parties through a divorce. This means that any retirement savings acquired before the marriage or after the divorce can be fully reserved for the individuals who originally earned the benefits through employment. When this is the case, calculating benefit divisions can be a much more complicated process.

It is important to note that IRAs (Individual Retirement Accounts) are not handled with QDROs, which are governed by federal law. Instead, IRAs are divided using divorce decrees or legal separation agreements that are approved by the court. These will involve non-taxable transfers.

When it comes to Social Security benefits, an eligible individual can receive benefits for retirement based on his or her former spouse's Social Security record, but only if the person receiving the benefits is age 62 or older and the marriage lasted for at least 10 years. Those benefits could be up to 50 percent of the former spouse's benefits, which would not be reduced as a result of the process.

The divorce rate for people age 50 or older has more than doubled between the years of 1990 and 2008, according to a study by Bowling Green State University. For this reason, the issue of retirement benefits division during divorce has only become an even more relevant issue in this day and age. Even younger people, however, will need to deal with the issue.

The process of dividing retirement savings is a very complicated process and should be carried out with the assistance of a skilled attorney. Contact the Law Office of Robert W. Kovacs, Jr. for more information about how an attorney can assist you. With your financial future at stake, you should not take any chances. The Law Office of Robert W. Kovacs serves clients residents of Worcester, Massachusetts as well as residents of Auburn, Fichburg and Milford.