Getting a divorce usually comes with the task of splitting assets. Splitting retirement savings might seem scary! Or, you might not be thinking much about your retirement plans at all. If you have certain retirement plans, you’ll need a legal order to split them up. This includes IRAs, private pension plans, and 401(k) plans.
Splitting Retirement Savings: What You’ll Need and How To Get It
What’s a QRDO?
A Qualified Domestic Relations Orderrecognizes the existence of an alternate payee’s right to collect all or a piece of the benefits payable. A QRDO is a domestic relations order that allows splitting retirement savings between two formerly married individuals.
Who is an “alternate payee”?
A spouse or a former spouse, for the purposes of splitting retirement savings early. Also, children or other dependents can be alternate payees in certain situations. The spouse who contributed to the plan is known as the “participant”. As a spouse, you have the legal right to information in the participant’s retirement plans. This also includes benefit statements and other documents.
Will I Be Penalized for Withdrawing Early?
Usually, federal law penalizes those wishing to withdraw from their retirement plans early (before 59.5), but there are exceptions. One of them is when you are withdrawing early because of divorce. Splitting retirement savings early with a QRDO will help pay survivor benefits when a participant dies, as well.
Do I NeedA Lawyer?
To put this simply: yes, you do. When splitting those savings or any other monetary asset it is best to get legal advice. You can find a template online to create a QRDO, then submit it to the court for approval. But know that it is risky doing this without an attorney. A tiny mistake can cost you and/or your former spouse a lot of money.
It may be comforting to know that courts divide benefits based on the length of your marriage. Depending on your state, some states will use the date of separation and some might use the date of divorce. Consulting a local law professional can help ensure splitting retirement savings goes smoothly for you.