Retirement Accounts, Pensions, and QDRO's
Deferred compensation plans – pension plans, 401k plans, IRAs, and others are divisible as part of a property settlement in Massachusetts divorce cases regardless of which spouse is named on the plan.
There are two main kinds of deferred plans to consider:
- Savings Plans, such as IRAs and 401k Plans. These are considered cash plans because they are easily liquidated before retirement. The only downfall is that there may be some tax consequences related to cashing out certain plans prior to retirement age.
- Defined Benefit Plans, which include both vested and non-vested retirement and pension plans, are less liquid. There are ramifications if said accounts are liquidated. If the plan is vested, it is guaranteed to be paid because the employee has likely met certain conditions such as staying with the company for a set period, retires, etc. If the plan is non-vested, it is not guaranteed, and will be forfeited if the employee does not meet certain requirements.
How Retirement Accounts are Divided
The first thing divorcing parties should do is make sure dividing an account makes sense. Just because one party thinks that he or she should get half does not mean that it has to be half of each asset. It may be more sensible to bargain or give up rights to a retirement account in return for more liquid assets, a bigger portion of the home equity, or a longer or shorter alimony obligation.
If parties are to divide accounts, they must do so in a specific way as it relates to divorce. A qualified domestic relations order (referred to as a QDRO, pronounced "quadro") is addressed in the divorce decree and the plan administrator is instructed to distribute some portion of the account to an alternate payee, the former spouse.
Dealing With Pension Accounts
Several approaches are possible when it comes to dividing pension accounts. The most common is to delay the division until the time the pension benefits are paid out, generally at the time of retirement. Others may opt to have the recipient collect on the benefit and have the ongoing income stream counted as an income stream for which support is calculated upon. If a division is required, the parties may accomplish this by means of a QDRO. Another consideration is dividing a future stream of income, rather than using a present-day cash value, and letting the court retain jurisdiction of the benefits until each party gets his or her share.
Like all retirement assets, the most important thing to watch out for is that both parties are fairly apportioned both the benefit, along with the tax burden of any retirement asset.
Boston Divorce Attorneys in Essex County, Middlesex County, and Norfolk County
The financial details involved in the dissolution of a marriage can be very complicated and often overwhelming to people making their way through the divorce process. To learn more about your financial history, holdings, rights and responsibilities, call (800) 763-1030 or e-mail us for a FREE, no-obligation consultation at any of our local offices . To get started on divorce planning and figuring out what you own and owe, start filling-out our worksheets and spreadsheets .