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In this article, you will discover:
A QDRO or “Qualified Domestic Relations Order” is essentially a garnishment by court order on someone’s retirement plan, usually a pension or 401(k) account. The order is kept on file with the participant’s plan. When the participant retires, the plan will cut two checks, one to the participant and one to the non-participant ex-spouse.
Having a QDRO is highly recommended. Relying on agreements alone is unwise. However, if one party has a deferred compensation plan or an IRA, and the plan permits a direct transfer of assets from one retirement account to the other, you may not need a QDRO. In that case, it would be less expensive to do a straight transfer from one account to another versus doing a QDRO.
You have the right to do so, but before you decide to simply agree to keep your accounts separate, you should have full disclosure of what is in each portfolio. In other words, you should be fully aware of what you are waiving before you waive it. You also want to confirm your ex-spouse hasn’t raided their retirement accounts over the last few years.
In the case of a pension account, your share may at first seem minimal. For instance, your marital share of your spouse’s pension may only be $500 a month. Consider, before you forego that amount, what the $500 a month translates to over time: anywhere from $120,000 to $180,000 over 20 to 30 years.
If you give up your presumptive rights to a $500 monthly share of the pension, and you only have $50,000 in your 401(k), it doesn’t make sense to give up $120,000 to $300,000 in exchange for your spouse giving up a share of $50,000.
401(k)s and IRAs differ when it comes to backing out a premarital contribution. Retirement assets have a special carve-out under New York State divorce law. You get to back out whatever was in the account before the date of marriage. That differs from other types of assets.
With bank accounts and investment accounts, the standard rule is you can’t back out premarital portions if the accounts have mixed premarital and marital funds (known as co-mingling). When accounts are co-mingled, the assets in those accounts are presumed to be marital, causing them to differ from the treatment of retirement accounts. Exceptions to this rule would come into play if:
Pensions are a divisible asset of the marriage one must disclose on one’s net worth statement. Net worth statements are sworn statements listing what each party has in terms of assets, debts and income.
Sometimes, people leave pensions off their net worth statement. They may assume it’s not an “asset” because it technically doesn’t exist yet (in their mind) as it only has realized value when they retire. That’s not the case. Net worth statements give clear examples of which retirement assets must be disclosed in a divorce, and pensions are specified as assets requiring disclosure.
While pensions are definitely a marital asset, you can waive them. That should involve a valuation of the pension account to reduce it to its “present value.” Then, one can compare the value of the pension to other assets.
Attorney David Bliven is an experienced lawyer based in White Plains and The Bronx, NY, who has helped countless clients just like you navigate the intricacies of family law. With over 26 years of experience, he is prepared to assist you with the division of assets in your divorce proceeding so you can reach a fair settlement.
Still have questions? Ready to get started? Contact The Law Offices of David Bliven today to schedule an initial consultation.
There should be no tax implications for dividing retirement accounts. Usually, retirement accounts are either waived or divided. As long as they’re divided into other retirement vehicles, there are no taxes paid at that time. At some point, somebody will have to pay taxes unless they have a Roth IRA and have pre-taxed their retirement. In most other instances, once you start drawing from your retirement, that’s when you pay taxes.
However, suppose a monied spouse has a 401(k), and the less monied spouse needs cash and wants a distribution now. There’s an issue of who pays the taxes and penalties on the distribution of those funds into a checking or savings account. That needs to be negotiated in the settlement agreement.
You can’t leave this issue unresolved. Otherwise, whoever is distributing the funds from their 401(k) account to their spouse’s account will automatically be taxed. If their settlement agreement is silent on the matter, they can not dispute who owes the taxes on that money later on.
With anything other than a pension account, the best method for calculating the value of a retirement account would be to look at the account statements. For due diligence, you want to look at a year (if 2-3+ years) of statements to verify there have been no withdrawals or loans taken from the retirement assets.
This valuation gets more complicated when you have both a premarital portion and contributions into the retirement account after filing for divorce. You also need to consider the market interest accrued on your ex-spouse’s portion of the retirement versus how much accrued on your portion. That analysis can only be done by an expert.
With regard to valuing pension accounts, you can reduce these accounts to their present value. Most of the time, people do this if there’s an issue of trading assets back and forth. For example, you could agree to give up a portion of child support, retroactive child support, a share of property, or maintenance (also known as alimony) in exchange for a waiver of your spouse’s pension.
If you do that, you need to know how much the pension is worth. You can’t derive that from the pension statement. The dollar amount listed on your monthly, quarterly or annual statement of pension account is not the value of the pension (for purposes of distribution in a divorce case).
The value of the pension instead is based on a complex analysis (i.e., “actuarial assessment”) of:
Your attorney can give a rough estimate of the pension’s value, but it could be vastly different from what a financial expert will determine. If you’re going to mix and match assets or have waivers of some financial claims in exchange for a waiver of pensions, the present value analysis should be done by an expert.
That’s usually done by entering a Qualified Domestic Relations Order (“QDRO”). Once you determine how much the “alternate payee” (a/k/a the non-participant in the retirement account) will receive, you can include that language in the settlement agreement.
Suppose it’s a transfer from your spouse’s 401(k), IRA or deferred compensation plan. If you’re the one receiving the money and don’t have a retirement account, then simply go to the bank and set up an IRA. The bank typically requires $50-$100 to open the account.
Now, you have an IRA set up and can accept the transfer from your spouse’s 401(k), deferred compensation plan, or IRA account. If it’s a pension, then you have to do a QDRO, and you only get that money when your spouse retires.
Whether you need a financial advisor depends on whether you’re worried about tax implications or want more in-depth financial analysis regarding mixing and matching distributions of retirement assets, other assets, maintenance and child support. The more complex you get in the financial settlement, the more you may want a financial analyst.
Any attorney can refer you to a certified divorce financial analyst. However, for a relatively simple distribution, you may not need expert help, as you and your attorney can generally look at the statements and work out the account division together.
Still Have Questions? Ready To Get Started?
For more information on dividing retirement accounts in an uncontested divorce, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling
(347) 797-1188 today.
Attorney David Bliven is an experienced lawyer based in White Plains and The Bronx, NY, who has helped countless clients just like you navigate the intricacies of family law. With over 26 years of experience, he is prepared to assist you with the division of assets in your divorce proceeding so you can reach a fair settlement.
Still have questions? Ready to get started? Contact The Law Offices of David Bliven today to schedule an initial consultation.
