Retirement plans are marital assets and courts often treat the portion of benefits earned during the marriage as marital property divisible in a divorce, just like other marital property. Typically, only this marital portion is divisible since a spouse’s premarital contributions are considered to be that spouse’s separate property. Like other marital assets, retirement plans must be addressed and divided at the time of the divorce. If the retirement account is overlooked during the divorce, it usually is not possible to reopen the divorce case and ask for a share later -- unless a spouse fraudulently hid the plan’s existence from the other spouse.
Many retirement plans require a Qualified Domestic Relations Order, or QDRO, to distribute a portion of the plan to an ex-spouse, including most employer-sponsored plans. QDROs are court orders that give someone other than the participant in the plan the right to receive a portion of the plan’s benefits. QDROs are necessary to override provisions in the Employee Retirement Income Security Act that would otherwise prohibit benefits from being diverted to someone other than the plan participant.
Implementing a QDRO
When a spouse’s retirement benefits are split by a QDRO, some plans allow the recipient spouse to cash out her share at the time of the divorce. Although she will pay taxes on the money she receives, it won’t be the usual 10 percent penalty for early withdrawal if the cash out is because of a divorce decree. She can also roll over the funds into a retirement account of her own or begin taking distributions at the time her ex-spouse retires, even if his retirement is years after their divorce.
Social Security retirement benefits are not considered marital assets subject to division in a divorce since a state judge has no authority to divide them. A person might still be able to collect Social Security benefits based on her ex-spouse’s work record, once the covered ex-spouse becomes eligible to receive them, if the marriage lasted at least 10 years and his benefits are greater than hers.