Your retirement accounts and what to expect in property division

In addition to your home, retirement accounts may be among the most significant assets to be split during the property division phase of your divorce.

Retirement accounts fall into two categories and splitting will depend on the kind of account that is up for division.

Types of retirement accounts

You may have a defined contribution plan, or savings plan, to which both you and your employer contributed. A 401(k) is an example as is a 403(b) and an IRA. On the other hand, a defined benefit plan is a company retirement or pension plan. This kind of plan pays a lifetime benefit calculated on an employee’s years of service. Both kinds of retirement plans will require a valuation.

About the QDRO

Your divorce decree will describe the terms for splitting retirement assets. As your divorce attorney can explain, most retirement accounts require a Qualified Domestic Relations Order or QDRO. This is a court order that a retirement account administrator will use to divide an asset such as a 401(k) into two accounts. QDROs do not apply to military or government pensions.

About an IRA

Section 408 of the Internal Revenue Code governs IRAs. Neither a traditional nor Roth IRA requires a QDRO. The transfer of IRA funds between you and your soon-to-be ex will be nontaxable as long as the transfer takes place according to the divorce decree. However, the divorce decree must specify the division of the IRA. The information must include percentages or dollar amounts and designate a time frame in which to complete the split.