Pensions, Retirement and Investment Accounts in Divorce
For many divorcing individuals, the most substantial assets up for negotiation will be retirement and investment accounts of various kinds. Under some circumstances, these can be relatively simple to identify as marital property no matter how big the portfolio balances might be, and they can be liquidated and divided, bought out or settled through the use of qualified domestic relations (QDRO’s) orders. In other cases, the division of investments and pension accounts is complicated by characterization issues, valuation problems or the vague terms of an old prenuptial agreement. Some 401(k) accounts or defined benefit pensions are difficult to value or divide if part of their value existed prior to the marriage.
A QDRO is a court order given to the administrator of the retirement plan directing it to make payments to both ex-spouses. For example, if the 401k is in the ex-husband’s name and there is a valid QDRO entered directing the plan administrator to pay fifty percent of the payments to the ex-wife, once the ex-husband begins receiving payments (after his retirement) the administrator must remit half of each payment to the ex-wife. This special exemption regarding obtaining cash without penalty only applies to a 401k pursuant to the terms of a QDRO; it does not apply to IRAs.