As part of a divorce, a New York judge will need to divide the assets a couple has accumulated while married. These assets can include retirement or pension savings, even if the account is in the name of only one spouse. Because some couples amass considerable sums in a 401(k) or pension, spouses cannot overlook them when deciding which property to ask for.
You will need a qualified domestic relations order (QDRO) from a judge to properly divide a pension or retirement account. The order must also meet the requirements of the plan that is to be divided.
Defined Contribution Plans (Retirement Plans)
Most workers probably are familiar with these plans, which are commonly called “retirement plans.” They include:
- SIMPLE 401(k)
- SEP account
- Profit sharing
With these plans, the participant is not guaranteed any income when they retire. Instead, the participant makes contributions to the account during their working years and then has a sum of money available to withdraw when they reach a certain age. The savings grow based on the investment decisions each participant makes over the years. If the participant makes good decisions, more money will be available.
When divorcing, the funds will need to be divided proportionally based on the division agreed to by the divorcing couple or set by the judge. For example, Joe and Martha might be divorcing, and Joe has $100,000 in a 401(k). If the judge divides it in half, Martha gets $50,000. Martha is the “alternate payee,” and she will probably open an IRA to deposit her funds into.
One problem that often arises is that funds appreciate or depreciate constantly, especially if they are invested in the stock market. You might agree to take half of a $100,000 401(k), but while waiting to set up an IRA that $100,000 could grow or shrink. You must have an agreement or court order in place that states what will happen to the appreciated or depreciated amount.
Defined Benefit Plans (Pension Plans)
Pension plans have become less popular over the years with employers, but some workers still have them. With this type of plan, the worker is guaranteed certain income at retirement based on certain factors, such as years of service and final salary.
Defined benefit plans often have many added benefits, such as:
- Single-life annuity
- Joint and survivor annuity
- Early retirement benefits
- A pre-retirement or post-retirement death benefit
Because of the presence of these additional benefits, a QDRO is often more complicated for defined benefit plans. Any separation agreement or court order will need to include a discussion of these other benefits, otherwise you will not receive them.
Consult with a Saratoga County Divorce Attorney Now
Dividing marital property is often complicated, and drafting a qualified domestic relations order is not something our clients should attempt themselves. The QDRO must not try to award something that is not available in the plan; if it does, it is invalid.
To meet with a knowledgeable divorce lawyer, please contact the Colwell Law Group today. We offer clients a free initial consultation to answer any questions they might have. You can reach us by calling 518-312-4058 or filling out an online contact form.