What Happens to Retirement Assets in a Divorce Settlement?
We so often think of divorce, or dissolution of marriage as it is now termed, as usually happening to couples in their twenties and thirties. So why, then, would there be much concern with retirement assets as there would likely be little to consider unless the couple was wealthy? In truth, however, a phenomenon termed Gray Divorce, that is divorce involving couples over the age of 50, is occurring in the US at an alarming rate. According to sociologists at Bowling Green, Ohio, State University who did an in depth study of Gray Divorce, the rates for older couples divorcing doubled from 1990 to 2010. Additionally, census bureau data found by 2010, 1 out of every 20 people in the US who got divorced was over 65 years old. Furthermore, statistics show over half of Gray Divorces were to couples in their first marriage. So you can see, the likelihood of interest over what happens to retirement assets is of great concern to many couples.
Any retirement asset that qualifies as marital property, which can be qualified money, defined benefits, or defined contributions can be divided equally. However, to do this, a QDRO (Qualified Domestic Relation Order) must be provided. According to Babylon.com, an on-line dictionary, a QDRO is defined as “A court order directed to a plan “administrator” or “custodian” allocating retirement benefits between spouses.” The person whose interest is being transferred is called a “participant” and the person to whom the money will be transferred to is referred to as the “alternate payee”. Usually it is divorcing spouses but it can be a child. An experienced Family Law Attorney will know the steps to take to create a QDRO, when necessary.
It should be noted here that sometimes there will be a cash buy-out or increased payment from the sale of a home or property to equal the amount a spouse is entitled to from retirement assets. In this case a QDRO would not be needed. It is also interesting to note that employers are allowed to charge an allocated administration fee for processing a QDRO, which, if other payout arrangements are made, can be avoided.
When a QDRO is needed, the first step is to contact the financial institution where the money is located to obtain a copy of the printed form they require to be filled out and signed by a judge. This is necessary as there is no generic form since each financial institution has it’s own specific form. Your attorney will then draft an order for a judge to sign off on. Once the financial institution, usually the bank planner the company uses, receives the signed QDRO, the money will be transferred directly to the spouses bank account to be taken out as cash or transferred to a retirement account in that spouse’s name. Money taken directly will be taxed immediately, while money put into a retirement account will not be taxed until it is removed.
As with so many aspects of a divorce, there are times when areas of concern are not handled exactly as prescribed and this is true of retirement assets. Sometimes a bank refuses to honor a QDRO in which case a hearing will be set with the judge to set things straight. There are attorneys who special in QDRO complications which your attorney may use if the case is particularly difficult. Usually, however, once the financial institution receives the completed and signed QDRO, the money transfer is processed quickly and without difficulty.
If you would like to find out more you can schedule a free in house consultation with Attorney Grant Gisondo. Call now at (561) 530-4568.