For older couples, or those who have been married for a long time, pensions and retirement accounts are extremely important assets for the future. In Washington, money earned in these accounts during a marriage become the community property of the couple, which is subject to being split up in a divorce.
Not all accounts will have to be divided between divorcing couples. When both spouses have pension or retirement accounts with a relatively equal value, the couple may decide that each will keep his or her own accounts and will relinquish their claims on each other’s.
In cases where one spouse’s account is worth significantly more money, that spouse may be able to provide an asset or money to the other so that the retirement account is protected. For example, if a husband has a retirement account worth $20,000, and his wife has a retirement account worth $15,000, the husband may be able to give the wife $2,500 to equalize the value of the accounts. In this case, the court would not have to issue an order dividing the retirement accounts.
In order for a spouse to receive a portion of a pension or retirement account during a divorce, the court must decide how the assets will be split as part of the divorce decree. During the divorce case, the court will enter a Qualified Domestic Relations Order (QDRO, pronounced “quadro”), which will allow the systems which regulate pensions to distribute money to both spouses.
If a QDRO is not entered, the pensions being managed under either the Employee Retirement Income Security Act (ERISA) or the Internal Revenue Service (IRS) will not allow funds to be disbursed to a spouse or a child. These include plans using a 401(k) or Roth IRA. In fact, most pension plans are managed by either the IRS or ERISA.
Additionally, the QDRO must comply with the terms of ERISA and/or the IRS. For example, if a pension does not vest until a person reaches the age of 65, then the QDRO cannot be used to take money out early. Other types of accounts may allow early withdrawals, which could be an option for people who want to give their former spouse money in exchange for another asset like a house or a car.
When it comes to determining the value of retirement accounts, pension accounts, 401(k) plans, or other assets, an attorney and an accountant will often need to work together to calculate which parts of these accounts are community property and which parts are separate property.
Because splitting up the assets in a retirement fund is so complicated, it is important to have it done correctly. Having to fix a mistake in a QDRO years later can be costly and time consuming, which means that you will want an experienced family law attorney to draft your order. At Pacific Northwest Family Law, our Washington family law attorneys understand the rules that govern retirement plans, and will create a QDRO that is done right the first time.
If you are contemplating a divorce or separation, and want learn more about your rights and obligations, call us today at 509-572-3700.