What Happens to Your Retirement Funds in a Divorce, Getting Prepared for the Process


What happens to your retirement funds in a divorce? One of the biggest concerns related to divorce is money. Not only you will have to deal with assets split-up, but you may also suffer from a drastic reduction of income – whether you are working or not. If you are working, you lose a contributory part of the spouse. If you aren’t, you lose the main source of income.

Another thing to consider is about the retirement plan and funds. Most couples have accumulated their wealth, assets, and belongings during the marriage; so splitting them up often leads to a conflict. The retirement funds are often the biggest and also most valuable assets, which require a careful approach in the solution. Yes, such a thing is complicated. That’s why knowing some of the basics can help.

About the Retirement Funds

When your spouse has a pension or 401(k) plan, you are supposed to be entitled to the balance legally – unless you have a prenuptial agreement that says that you aren’t. The same thing also applies to you if you are the one having the retirement plan. Your spouse has the legal rights to a part of your balance.

However, the arrangement can be a bit complicated. You see, the retirement funds (in most states) are added directly to the retirement funds and it is considered marital property. That’s why both the husband and wife should divide it equally. However, if the husband and wife have already had the funds when they start the marriage (either one of them or even both), then the funds will be considered separate property. Of course, different states have different policies and regulations, so be sure to check yours. Basically, anything will be considered marital property when they are contributed during the marriage. And for that matter, marital property should be split up.

Gaining Access to the Funds

One of the ways to access the funds is through QDRO (Qualified Domestic Relations Order) often pronounced Quad Row. This is basically a court decree, judgment, or order that is related to property rights, alimony, and child support. This QDRO contains instructions of how the retirement funds or pension plan should be used to pay you – related to your share of benefits. This instruction will protect your rights by making sure that the marital property should be used properly – without resulting in the potential of abuse. In the event that one party is trying to withdraw or separate it, the person will be penalized.

Keep in mind, though, that this QDRO is applicable to tax-qualified plans or plans covered by ERISA (Employee Retirement Income Security Act). QDRO won’t apply to government or military pension. These kinds of pensions are under other regulations and laws.   

It is best to ask the counselor or divorce lawyers responsible for your case. Such an arrangement can be complicated, even tricky. In the event that one of you has the pension plan, you can ask your lawyer about what happens to your retirement funds in a divorce. Let them manage it for your best sake and interest.