During a divorce, any retirement account either spouse holds is subject to property division proceedings. These funds are some of the most difficult to divide and the process can sometimes be lengthy. These funds also require a court order that is separate from the divorce settlement agreement. To ensure that these assets are divided properly, individuals must work with a family lawyer that is familiar with how these assets are divided, and that can help you navigate through the process.

Determining How Many of the Funds to Divide

Only marital property, which is property that was acquired by the couple during the marriage, is divided during a divorce. This concept can become complex when dividing retirement funds because in many instances, a person has acquired some of their funds prior to the marriage, but continued to build the retirement fund after they were married. As such, a portion of those funds are considered separate property and the remaining funds are considered marital property. The first step then, when dividing retirement funds, is to determine how much of the account is considered marital property.

Qualified Domestic Relations Orders

All divisions of retirement funds require a Qualified Domestic Relations Order (QDRO). This lengthy document will detail how much of the retirement fund each spouse is entitled to receive after the divorce, as well as a number of other details. To begin the process, it is essential to work with a divorce lawyer that can contact the administrator of the plan. There are a number of specific steps that must be taken when dividing these funds, and your lawyer and the plan administrator will work together to ensure those steps are followed properly. The administrator must also approve the QDRO before it is submitted. The funds cannot be transferred until the administrator has approved the QDRO.

As baby boomers settle into retirement, many are finding that a divorce has now become part of the plan. It is now estimated that “gray divorces” or those filing for a divorce after the age of 65, has tripled in number within the past few years. Aside from the challenges of any divorce, a gray divorce presents a new and often costly challenge, the division of marital property such as a pension, Individual Retirement Account (IRA) or a 401(k) plan and the fees associated with the Employee Retirement Income Security Act of 1974.

The division of one of these plans, the 401(k), a qualified profit-sharing plan offered to employees with individual salary-based contributions, usually matched by the host employer, has created a new legal reference now coined by divorce attorneys as a “silent fee."

As the couple’s wealth has increased over the years, the “silent fee” determines the cost of repositioning or division of funds, often leading to increased frustration during the division of property process.

You would think that your divorce is over when your lawyer prepared and entered the final Judgment for Dissolution of Marriage in your case. You and your spouse can shake hands and go your separate ways.

You would think, “What's left is to divide the property in your agreement.” Simple, right?

However, even though you have a written Marital Settlement Agreement set forth in your Judgment stating who gets what items of property, you still have to divide things up. This can be a troubling time for divorcing spouses.