Devine Millimet | NH Law Firm

Retirement Accounts and Divorce

Often times the divorce does not fully end once the Final Decree is issued. One of the more complicated post-divorce or implementation items is dividing retirement benefits. The typical retirement benefit through an employer sponsored plan must be divided through use of a separate court order that complies with regulations under the Employee Retirement Income Security Act (“ERISA”). This order, known as a Domestic Relations Order, must be submitted to the plan administrator for approval and then becomes a “qualified” order, or “QDRO.” For military pensions, the Defense Finance and Accounting Service requires a similar order known as a Court Order Acceptable for Processing (“COAP”). Sometimes these necessary orders are not drafted at the time of divorce or do not include language to address important benefit options, which can cause headaches years later when the employee retires.
 
A 401(k) plan is a defined contribution plan with a cash account balance that can be divided such that each party receives their share now. The non-participant spouse, or “alternate payee”, is awarded a share which is transferred to a new account in their own name. Each party walks away with full control to decide when and how much to withdraw from their separate accounts, and each is responsible for their own tax consequences of any withdrawals. The QDRO for a 401(k) plan should address the date at which the division of the account is to occur, and whether the amount awarded should be subject to gains or losses in the market. Some plans allow for a percentage method, others require the QDRO to specify a dollar amount to be transferred. The QDRO may even be drafted to allow certain non-taxable withdrawals.
 
A pension plan is a retirement benefit that pays a monthly annuity starting at retirement age with the future benefit based upon a formula that includes the years of service with the employer and the employee spouse’s earnings record. These types of plans have rules for when the employee becomes eligible to retire and can start receiving lifetime benefits, and provides for benefit choices to be made at the time of retirement such as the type of annuity payment and any survivor benefits upon the employee’s death. With divorce these choices must be made ahead of time within the QDRO that is kept on file by the plan administrator, and if not properly addressed in the language of the QDRO can negatively affect not only the former spouse as alternate payee but also any future spouse of the participant. The QDRO should be drafted to address such things as when each party can begin to receive their share of the benefit, what happens upon the death of either party before or after retirement, and whether future cost-of-living adjustments or other plan options are applied.
 
By working with one of our experienced divorce attorneys Devine Millimet, you can have the peace of mind that your retirement benefits have been properly divided and plan for your future.
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