What happens to retirement funds and 401(k) plans in a divorce?
In community property states, accrued or vested retirement benefits are community property. This means they need to be divided in a divorce. Retirement benefits that fall under community property include military pensions, veteran's educational benefits, ERISA funds, IRAs, Keoghs, Employee Stock Option Plans (ESOPS), 401(k) and 403K plans, etc.
Certain retirement benefits are not classified as community property. They include:
There are two options for dividing retirement benefits: (1) the present-day valuation buy-out, and (2) division into two accounts. In the former, the spouse without the retirement benefits takes the present-day value of his or her interest in the retirement benefit and trades it for something else of equal value, such as cash or other assets. Stock options and pension plans where a person must work for a certain number of years may be worth more than you think. It may be advisable to hire a professional pension actuary or appraiser before making a decision. This will cost $150 to $300, but could be well worth it.
When dividing a retirement account, you want to make sure you don't lose any tax advantages. A Qualified Domestic Relations Order (QDRO) will be required to transfer a share of retirement funds from the spouse participating in the retirement plan to the other spouse. Please contact the retirement plan administrator or a qualified attorney for more information regarding QDROs.