Dividing Pension and Retirement Accounts in Divorce

Pension and retirement accounts (401K’s, IRA’s, etc.) are community property to the extent they were earned and/or contributions were made during marriage.  The community interest in these retirement accounts can be divided by either by a domestic relations order or by determining the pension value and equalizing the non-member spouse’s interest with other assets.  The pension value can be determined by a financial professional, such as a CPA, an actuary, a financial planner or other such professional.

California case law has determined that whether a retirement account is “vested” makes no difference to whether the account is a community asset subject to division in a divorce.  Vesting means that at least some of the retirement plan belongs to the employee.  Usually the employee contributions are 100% vested immediately.  Vesting usually applies to the employer contributions and whether the employee is entitled to those contributions if s/he leaves employment.

In order to divide a retirement account in a divorce, and make the division a non-taxable event, the division of this asset must be addressed in the judgment and there may need to be a domestic relations order (depending upon the type of retirement account).  In order to make the plan administrator subject to the domestic relations order, you must first “join” the plan administrator to the divorce action.  IRA’s do not require a DRO, but defined contributions plans and defined benefit plans do require DRO’s.  If the retirement plan is governed by the ERISA statutes, then the DRO must be “qualified” which then makes the order a QDRO rather than a DRO.

The proper division of a retirement account is best left to professionals.  Even family law attorneys will tend to refer the preparation of the QDRO out to an attorney that specializes in dividing retirement accounts.  These QDRO attorneys will typically charge between $500-$1,200 per retirement account, usually giving discounts for multiple accounts.  If you are the non-member spouse, the retention of a QDRO attorney is a worthwhile expense as you would be the party more likely to be harmed by a faulty judgment or processing.