Dividing Retirement Accounts

When it comes to dividing retirement accounts, you want to be informed of all possible impacts.  Accessing one's retirement account for the purposes of withdrawing money before reaching the age of 55 years old can result in specific federal income tax and penalties. However, pursuant to the Employment Retirement Income Security Act (ERISA), there is an exception to this rule when spouses going through a dissolution of marriage must divide a retirement account from the name of only one spouse to the name of each individual divorcing spouse. The named owner of the account is usually referred to as the "participant" or "beneficiary", while the spouse whose name does not appear on the account is referred to as the "alternate payee".

While except under specific circumstances the retirement funds can still not be accessed by either spouse for spending without suffering a tax penalty, the account can be divided and a portion transferred to the alternate payee spouse without tax penalty for the transfer. For example, some 401k plans are exempt from the 10% penalty provided the transfer is occurring incident to a divorce. Thus, two retirement accounts are created where previously there was only one account without penalty to either spouse by way of a Qualified Domestic Relations Order. At TLC, an experienced family law and divorce attorney can assist you in drafting and obtaining your Qualified Domestic Relations Order.