What Happens to Retirement Assets During a Divorce?

Divorce is a challenging process for spouses to navigate, especially when it comes down to splitting all the assets you accumulated throughout the marriage. Even your retirement assets will be subject to division during the divorce process. That said, you cannot simply pull funds from your retirement accounts unless you want to suffer the 10% penalty tax. Continue reading to learn more about how retirement assets are handled in a divorce.

Dividing Retirement Assets

As is the case with any marital property, retirement assets must be divided. However, only the retirement assets accumulated during the marriage will land on the chopping block. Any contributions made before saying, “I do,” or after filing for divorce are considered separate property.

When dividing retirement assets, it is crucial to use a Qualified Domestic Relations Order (QDRO) to divide the retirement assets without dealing with a penalty tax. When your former spouse receives QDRO benefits from a retirement plan, the payments must be reported by your ex, even though you were the original participant. Your former spouse may also roll over these payments into another retirement account.

A QDRO only applies to certain qualified retirement plans covered by the Employee Retirement Income Security Act (ERISA), which means that it is not applicable to IRA assets. That said, IRAs can be split under the divorce agreement.

There are typically three ways to divide pension assets:

  • The cash out method, wherein the former spouse will receive a lump sum settlement
  • The deferred division method, wherein each spouse is granted a share of benefits when they are paid by the plan
  • The reserved jurisdiction method, wherein the court will retain authority to order distributions in the future

Dividing retirement assets can be a complex process, so do not hesitate to hire an experienced attorney.

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Dividing marital assets in a divorce can be tricky, so you should not hesitate to hire a knowledgeable family law attorney. At Crossman & McNamee, LLC, our family law team is committed to guiding clients through some of the most challenging cases to ensure their interests are protected.

Call our law office today at (937) 468-3796 to set up a case review with one of our skilled family law attorneys to discuss the details of your case.