How are retirement accounts included in a divorce settlement?

For Minnesota couples who hold a significant amount of assets and property, the divorce process often requires careful attention. As couples approach property division to negotiate how their community property will be divided, it may become important to pay attention to how a spouse's retirement plans are included in the final settlement.

A divorce settlement can include provisions to disburse payments from a retirement account to an alternate payee. The primary way that divorcing couples establish payments from these accounts is to instate a Qualified Domestic Relations Order. This is a legal way to allow an ex-spouse, child or some other beneficiary to receive money from your retirement account.

In many cases, properly establishing a QDRO can be complex, but there are some basic pieces of information that can make the court orders better understood. When establishing this provision, it's important to clearly identify the alternate payee, which specific retirement plan this order affects, the amount that will be paid and the frequency of payments. Generally speaking, any retirement plan covered by the Employee Retirement Income Security Act requires a QDRO to establish an alternate payee. Before any payments are made, however, the order must be approved by the account's administrator.

Including a QDRO in the property division process can be a way for someone to make regular alimony or child support payments. For some, this can be a useful inclusion in a settlement, because these types of payments do not result in penalties traditionally associated with early withdrawals from a retirement plan.

Even though the overall property division process can be complicated, having a basic understanding of how a retirement plan figures into a divorce settlement can be quite valuable. After all, a retirement account could be one of the biggest assets an individual holds, so it is likely to be a point of discussion during divorce. The inclusion of payments from a retirement plan in property division may allow divorcing couples to reach the equitable settlement they desire.

Source: Reuters, "What Is a QDRO? How Divorce Affects Retirement," Andrew Chow, JD, April 19, 2012