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Retirement accounts have special considerations in divorce

Divorces that involve certain types of investments will require a qualified domestic relations order, which is commonly referred to as a QDRO. If you or your spouse has a pension or other retirement account, you should know a little bit about these orders.

The purpose of a QDRO is to transfer money in a retirement account from the holding party to a former spouse or child. This is a court order that must be handled in a very specific manner. The order must be approved by the plan's administrator to be valid.

If the QDRO is approved, the transfers out of the retirement account won't incur any penalties for early withdrawal. There might be other considerations for you to think about, so it is best to work with an attorney who is familiar with these orders.

Some people falsely believe that their property division agreement can change the retirement accounts, but this isn't the case. Plan administrators can't change these accounts unless they have a court order that includes:

  • The number of payments or a time period for the order
  • The calculating method of division, whether by percentage or another formula
  • The name and last known mailing address of the account holder and the alternate payee
  • The plan names that are covered in the QDRO

Retirement accounts can hold a significant amount of assets. However, they are only one component in the property division process. Thinking about the big picture as you work through that process might help you to make decisions that will set you off on the best financial footing possible.

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