Employee retirement accounts can represent the largest asset for many married couples providing vital protection for the long-term future of both divorcing spouses. As such, they often become an important issue in a property division settlement in divorce. With occasional exceptions, spouses typically have rights to a portion of each other’s retirement funds, based on the contributions made or the benefits accrued during the years of marriage. Those rights continue after divorce.
The law began with the inception of the federal Employee Retirement Income Security Act (ERISA), which established the concept of Qualified Domestic Relations Orders (QDROs). As explained by the United States Department of Labor, QDROs are signed by the courts simultaneously with the final divorce decree, but other authorized state agencies can also issue them. They can protect the rights of any alternate payees of plan participants, which include only the following individuals:
- Former spouses
- Other dependents
A QDRO can entitle your former spouse or other payees to as much as half of your future retirement income, based on often-complex account valuation considerations that include the type of plan (defined benefit versus defined contribution) and the date of marriage, which affects the date the account became a marital asset.
While ERISA permits QDROs to be issued through legal channels separate from the divorce decree, most divorcing couples roll these issues into the property settlement during divorce. Make sure your divorce attorney is aware of any employee retirement accounts that will need to be included in your QDRO. Your retirement benefits — likely one of the most important property division considerations — may fall off the radar as you go through the many emotionally charged issues of divorce.