Pay close attention to retirement funds in divorce

Pierre Domercq Divorce

For many California couples who decide to divorce, their retirement accounts represent the largest single asset of the marriage and are of critical importance to both parties’ financial futures. This is one reason that 62 percent of divorce lawyers surveyed in 2016 reported that retirement funds were the most contentious issue dealt with by their clients; the division of these funds can have a significant effect on both people’s lives.
However, the complexity involved in dealing with retirement accounts as part of a property division settlement in a divorce isn’t limited to the difficulties a divorcing couple may have in reaching an agreement. Because these accounts are governed by an array of legal and financial regulations, the distribution must be carried out properly. When retirement funds are handled incorrectly during a divorce, it can cost both parties significant sums in taxes, penalties and fees.
A qualified domestic relations order or QDRO must be issued by the court in order to divide a retirement account. Despite the fact that its contents reflect the divorce settlement, it is not issued automatically with the divorce decree and must be specifically requested. A QDRO is necessary whether the retirement account is a traditional pension plan or a 401(k) fund; and for every retirement account being divided, a separate QDRO must be issued. If possible, a QDRO should specify distribution by percentages rather than by dollar amounts as the value of the account can fluctuate due to changes in the stocks or mutual funds in which it is invested.
The family law attorney who represented one spouse in the divorce may be able to draft the QDRO and have it approved by the court. The lawyer might also work directly with the retirement plan administrator to ensure that the distribution takes place correctly in line with regulations and in agreement with the settlement on property division.