How Retirement Plan Assets Are Divided in a Divorce

A Qualified Domestic Relations Order (QDRO) can protect your rights

bride and groom wedding cake toppers stand on either side of a jar filled with money indicating spliting assets during a divorce

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Divorce can be hard to deal with emotionally, and it can also come with financial challenges. You'll need to make informed decisions when it comes to dividing your property and assets with your spouse.

Learn what you need to know about divorce and your retirement savings.

Retirement Plans and Divorce

Retirement savings are among the most valuable assets many people own. That means they are often a big issue during a divorce. Knowing how to split retirement assets can be one of the hardest aspects of divorce, as they may be subject to tax implications. For that reason, they are often not handled properly.

If you're planning to get a divorce, and your spouse has an employer-sponsored retirement plan such as a 401(k) or pension plan, you're legally entitled to part of the balance. That's as long as you do not have a prenuptial agreement stating otherwise.

It also works the other way around: Your spouse is entitled to part of your employer-sponsored retirement account value if you have one.

But if your spouse was the primary earner, how do you protect your share of their retirement account? What's to stop your spouse's employer from paying out the benefits to your spouse or ex-spouse, leaving you with little or nothing?

The answer is, in most cases, a Qualified Domestic Relations Order.

Qualified Domestic Relations Order (QDRO) Defined

A qualified domestic relations order (also known as a "QDRO," pronounced "quad row") can protect you under these circumstances. A QDRO is a court order, judgment, or decree related to child support, alimony, or property rights. It can also instruct your spouse's pension plan on how to pay you your share of plan benefits.

A QDRO protects you, and it also ensures that a marital settlement does not allow the funds in the retirement plan to be withdrawn without penalty, and then deposited into the non-employee spouse’s retirement account (typically an IRA). Don't assume that your rights to retirement assets are covered just because your divorce decree states that you have a right to part of your spouse's funds.

Keep in mind that QDROs only apply to plans that are IRS tax-qualified and covered by the Employee Retirement Income Security Act, or ERISA. They do not apply to military or government pensions, which are governed by other laws.


You do not need a QDRO to divide IRA or SEP assets.

Drafting a QDRO During Divorce

A DRO is not considered "qualified" unless it's been approved by the retirement plan's administrator and the court. Retirement plans often have standard QDRO forms that your lawyer can use to draft the wording of the QDRO. Sometimes these are good enough, but if your share of your spouse's retirement account is large, you may want to work with a lawyer.

A lawyer who specializes in QDROs can ensure that each aspect of your marital settlement agreement is part of the QDRO. They can also help ensure that your rights are fully covered in a way that a basic QDRO form may not be able to provide.

If your lawyer is not experienced in QDROs, it might take them longer to do the research and fill out any forms, which could end up costing you more in legal fees. There's also the chance that they could miss something important that could cost you money.

Another factor in the writing of a QDRO is the type of retirement plan in question. Defined contribution plan assets (like 401(k) plans) are easier to calculate than defined benefit plan assets (like pensions). That's because defined benefit plan payments are based on complex calculations as well as other factors, like years of employment. If your spouse has this type of plan, your lawyer may have to hire an actuary to figure out your share of the plan assets.

Your lawyer should read the retirement plan's summary and other plan documents because the QDRO's terms must agree with the terms of the plan. Keep in mind that the issues related to defined contribution plans are different from those related to defined benefit plans. This is just one more reason it helps to work with a specialist.

What Your Retirement Payout Might Look Like

This topic can often seem confusing. In most states, funds added to retirement accounts during a marriage are marital property, which means that both you and your spouse have a right to them.

If either of you entered the marriage with funds already in a retirement account, that money is often treated as separate property in a divorce, but this may vary by state.

As a rule, only the assets that are deemed marital property are divided in the event of a divorce. Marital property consists of the assets that were contributed during the marriage, along with their earnings.

If your spouse is covered by a defined contribution plan, like a 401(k) plan, the timing of your payment depends on the plan. Some plans make an immediate lump sum payout, while others pay a lump sum in the future. They also may make periodic payments. 

If your spouse has a defined benefit plan, such as a pension plan, on the other hand, you are likely to receive monthly payments starting at your normal retirement age.

It's important to understand how much you stand to gain from the division of retirement assets as you plan for your future after the divorce. The amount, and whether you have other sources of savings or income, can help you make a retirement budget. It also could help you figure out how much work you may need to do to get back on track with your savings goal.

Think about whether you may need to tap into that money before retirement to meet daily living expenses if you were not working and didn't have a safety net.

You may be going back to work or receiving alimony or child support following the divorce, but if not, retirement assets could help you out until you're able to get back on your feet.


Be aware that taking out money from retirement plans before age 59 1/2 could trigger a 10% tax penalty as well as income tax.

The Bottom Line

Divorce can be costly in terms of lawyer fees and emotional health, but it can also have costly effects on your future financial security.

Learning as much as you can is the first step, and it's one of the best things you can do. But be sure you're also taking any legal action needed to protect your rights, and always employ a qualified team to help you do so. 

Frequently Asked Questions (FAQs)

Is a retirement account considered separate property?

Assets that are earned during the marriage are considered marital property. Anything added to a retirement plan after marriage will not be regarded as separate property and may be divided between both parties. In some states, this means they will be split 50/50, and in others, the courts will decide how to fairly divide the retirement plan based on factors like age, work history, health, etc.

Can you avoid the IRS penalty for early withdrawal on retirement accounts during a divorce? 

Any withdraws from a qualified retirement plan will not be subject to the 10% early withdrawal penalty if you receive them right away when using a QDRO. If you wait and have them rolled over into an IRA, you will have to pay the 10% penalty if you received distributions from that new account.

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