Unlike dividing other marital assets, the division of pensions, retirement plans, 401k plans, as well as other employment-related benefits require careful attention and a knowledge of the interplay between community property law and the various laws, regulations, and rules that govern employee benefit plans and other deferred compensation accounts.
Dividing pension and retirement benefits requires an understanding about the plan in general and the spouses benefits in particular in order to determine how best to divide the benefit. There can be significant tax considerations that need to be considered as well as potential changes in a spouses circumstances that may affect the value of the benefits. Consideration also should be given to how the division of these assets may affect child or spousal support issues.
In general, dividing pension and retirement accounts usually a separate court order known as a Qualified Domestic Relations Order, often abbreviated as a QDRO. These orders serve a number of purposes. They enable the pension plan administrator to divide the benefit between the employee spouse and the non-employee spouse. A QDRO also serves to shift the potential income tax liability on the non-employee spouse’s portion to the non-employee spouse. For some pensions the QDRO may also enable the non-employee spouse to receive their share of the pension as a monthly payment directly from the pension plan.
Dividing pension and retirement benefits in a divorce is a complex area of law and a divorcing spouse should consider having an experienced family law attorney advise and assist them in this process.