Dividing retirement accounts and pensions

Retirement accounts are often the largest asset after the home, and the easiest to divide wrongly.

Workplace plans need a QDRO

A qualified domestic relations order tells a 401(k), 403(b) or pension plan how to pay the other spouse. It is a separate order from the divorce decree and must meet the plan's rules. Ask the plan administrator for their QDRO procedures early and get the order approved before or right after the judgment.

IRAs are simpler

IRAs are divided by a transfer incident to divorce, usually with a copy of the decree. Done correctly, the transfer is not taxed.

Taxes and penalties

• A direct transfer under a QDRO or divorce decree is generally not taxable.
• Cash taken out of a 401(k) by the receiving spouse under a QDRO avoids the 10 percent early withdrawal penalty, though income tax still applies. The same exception does not apply to IRAs.

Pensions and military retirement

Pensions are often divided by a formula based on years of service during the marriage. Military retirement has its own federal rules and orders, and direct payment through the Defense Finance and Accounting Service generally requires at least ten years of marriage overlapping ten years of service.

Social Security

If your marriage lasted at least ten years and you have not remarried, you may be able to claim benefits based on your former spouse's record. It does not reduce their benefit.

This guide is general information, not legal advice. Laws differ by state and change over time. For advice about your situation, talk to a licensed attorney in your state.