How Do I Receive the Retirement Funds I Was Awarded In My Divorce Decree?

In this article we will examine How Do I Receive the Retirement Funds I Was Awarded In My Divorce Decree and we will answer the following questions:

• What Type of Retirement Accounts Are There?
• Are Retirement Accounts Considered Marital Property?
• How Do I Get Awarded a Part of My Spouses Retirement Accounts?
• Do the Retirement Funds Transfer to Me Automatically?
• What Is a Qualified Domestic Relations Order (QDRO)?
• Does Every Retirement Account Require a QDRO to Divide the Interest?
• How Do I Know What Type of Order I Need for the Retirement Accounts?
• What is the Process to Have a QDRO Entered?
• Once the QDRO is Entered, What Happens Next?
• Is Dividing a Retirement Account Pursuant to A Divorce Considered a Tax Event?
• What is The Difference Between A Pension Interest and a 401(k) or Cash Account Interest?
• What Are My Options After the Retirement Account Is Divided?

One of the major concerns when going through a divorce is what happens with the retirement funds that were accrued during the marriage. Often, one spouse maintains or accrues a significant retirement account while the other spouse has a far lesser interest in their own retirement account. The State Legislature has set forth the procedure for a spouse to transfer their interest in an accrued retirement account.

What Type of Retirement Accounts Are There?

There are multiple types of retirement accounts that a person may partake in. The most common type of a retirement account is an Individual Retirement Account or 401(k). There are also annuities and pensions, which are common amongst labor unions. There are also 403(b) accounts. In addition to various retirement accounts provided through employers.

Are Retirement Accounts Considered Marital Property?

Yes, in a limited capacity. Any retirement funds that are accrued during the marriage are considered a marital property. If the retirement account was in existence prior to the marriage, any funds that were in the account are non-marital property. This amount is determined by taking a “picture in time” approach, so on the day preceding the marriage the value of the account is the non-marital portion. Generally speaking, the company that administers the plan will be able to produce a valuation based on the date of the marriage.

How Do I Get Awarded a Part of My Spouses Retirement Accounts?

During the divorce proceedings, you will need to seek and be awarded a portion of the retirement accounts by the Judge. As part of the division of marital assets the Court can order that a portion of any retirement accounts be divided between the parties. The Judgment order entered should be specific as to the account, interest transferred, and who is responsible for ensuring that the appropriate action is taken to transfer and pay for transferring the interest in the retirement accounts.

Do the Retirement Funds Transfer To Me Automatically?

No, not exactly. On the date that judgment is entered your interest in the retirement account vests but you cannot access the funds without an additional order from the Court directing the plan administrator to transfer the appropriate interest from your spouse's account to a separate account in your name. To facilitate this transfer most funds require a Qualified Domestic Relations Order.

What Is a Qualified Domestic Relations Order (QDRO)?

A Qualified Domestic Relations Order (QDRO) is a formal order of direction from the Court to the plan administrator that instructions the administrator on how to proceed. This order explains the effect of the final judgment which divides the retirement account. In order to be effective, it must conform with the requirements of the specific plan administrator and include a specific scope of information that the plan administrator requires to ensure that the transfer is completed correctly.

Does Every Retirement Account Require a QDRO to Divide the Interest?

Every plan requires an order of direction to split the retirement interest but not necessarily a QDRO. Depending on the type of account that you are seeking to divide will determine the directive order that needs to be used. Government retirement accounts require a more detailed and specific order known as a Qualified Illinois Domestic Relations Order (QILDRO). Some accounts only require a Domestic Relations Order.

How Do I Know What Type of Order I Need for the Retirement Accounts?

The easiest way to determine the appropriate type of order to split the retirement account is to contact the plan administrator. The plan administrator will inform as to the form, content, and information that is required to divide that account.

What is the Process to Have a QDRO Entered With the Court?

Once you determine the type of directive order that is needed, a draft order needs to be prepared. The best practice is to submit that draft order to the plan administrator for approval. Once approved by the administrator to ensure it complies with the correct format and includes necessary terms, you need to motion the Court and notify the other party to have the order entered within the divorce case proceeding. The Court generally will enter the order on the same date as the presentment so long as the appropriate steps have been taken prior to appearing before the Judge that day.

Once the QDRO is Entered with the Court, What Happens Next?

After the QDRO (or appropriate directive order) is entered with the Court and signed by the judge, the signed order and a certified copy of the divorce decree which grants the interest in the retirement account must be sent to the plan administrator. Upon receiving the Certified Judgment and the entered QDRO, the plan administrator will divide and distribute the funds as instructed.  

Is Dividing a Retirement Account Pursuant to A Divorce Considered a Tax Event?

Dividing retirement accounts pursuant to a divorce judgment is generally not considered a tax event. The funds, pursuant to the directive order are transferred from retirement account to retirement account. It is treated similarly to a 401(k) rollover event.

What is The Difference Between A Pension Interest and a 401(k) or Cash Account Interest?

It is important to remember that when you are awarded an interest in a retirement account, you are awarded a portion of whatever interest your former spouse had. So when you receive an interest in a pension that benefit is delayed until your former spouse retires and activates the benefit. You are unable to compel the pension to make distributions. Upon your former spouse retiring and drawing against the pension, you will begin to receive payments.

If the account is a 401(k) or some other cash balance account, the value vests at the time the account is split. This means that on that date, the accounts are accessible to you to do whatever you choose to at that time.

What Are My Options After the Retirement Account Is Divided?

After a 401(k) or cash balance account is divided, the funds are yours to do as you see fit. You may act in any legally permissible way with the retirement accounts. It is important to note that should you choose to withdraw the retirement funds prior to an appropriate distribution age or event, you are subject to the tax penalties related to an early retirement withdrawal.