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How will a retirement plan get divided in a divorce?

On Behalf of | Dec 1, 2020 | Divorce

Even if they are of otherwise modest means, many if not most couples in Lexington may have a retirement plan through work or even as part of an individual account like an IRA.

For example, many government employees and even some private sector workers might have access to a pension that will give them the right to draw monthly benefits after they retire.

Many other Kentucky workers, particularly those in private business, might have a 401(k) or similar plan.

These plans allow people to invest a portion of the earnings in the market with favorable tax treatment, and many employers will also match a certain percentage of an employee’s contribution dollar for dollar.

In a divorce or legal separation, family law judges will ordinary divide retirement plans in what they see as a fair.

While this is not always the case, retirement plans are usually marital property subject to division, especially when either party started or grew the plan during the marriage.

Retirement plans present special legal issues

However, retirement plans can present some special legal issues during a divorce which other assets may not.

For example, if there is a lot at stake, the couple may argue about whether all or part of the retirement plan should be considered the separate property which the owner should keep outright.

Also, especially for pensions, putting a precise value on the plan can be contentious and may require the opinion of a financial expert.

Finally, in order to legally divide a retirement plan with tax incentives, the parties will have to prepare a proper qualified domestic relations order, or QDRO, for the judge to sign and submit to the plan’s administrator.

An improper QDRO can delay proceedings or, worse, lead to negative financial consequences.