Retirement plans through employment (such as 401k’s and pensions) and Individual Retirement Accounts (IRA’s) can be divided in a divorce. Retirement benefits earned before marriage and after divorce are separate property and are not divided in divorce cases.
There are no tax consequences of dividing a retirement plan in divorce, but retirement funds that are withdrawn are usually taxable.
Suppose a wife has $320,000 in her 401(k) plan at work and all of it was earned during the marriage. If the judge awards the husband $160,000 of the wife’s 401(k) plan, then the husband’s share is rolled over into an IRA in his name and the transfer is not taxable because the funds are still in a tax deferred retirement plan.
For private employers, their retirement plans are divided as set forth in the final decree of divorce and a separate, shorter order called a “Qualified Domestic Relations Order” (QDRO). A military Retired Pay Division Order is used to divide retirement earned in the armed services.
A spouse who has contributed to a retirement plan before marriage will need to provide documents proving how much was in the plan before marriage in order to make sure that separate property is not divided in the divorce.
An experienced divorce attorney with knowledge of dividing retirement plans can help you get your fair share of retirement funds in a divorce.