Many couples have community retirement accounts. Any contributions made during marriage, whether 401(K)s, 403(B)s, IRA, Keoghs, military retirement benefits, or pensions, are community and each spouse is entitled to one-half. This includes any years of service earned as part of a pension plan during the marriage, or contributions your employer made on your behalf during marriage. If you contributed before marriage and after the date of separation, that portion is your separate property.
Retirements are grouped into two kinds; either a defined benefit plan or a defined contribution plan. With a defined benefit plan, you receive a monthly benefit at retirement based on a predetermined formula that uses factors like years of employment, salary, and age. This is typical of pensions. With a defined contribution plan, either the employer, employee or both make contributions to the retirement plan on a regular basis. Common examples are 401Ks and 403Bs. In order to divide the community portion, you will need a Qualified Domestic Relations Order, called a QDRO. QDROs are very complicated and require legal expertise. It is very important to have a QDRO specialist prepare one for you.
IRAs have less restrictions. You do not need a QDRO to transfer funds. You can rollover the funds from your IRA to a rollover IRA in your spouse’s name as part of your divorce agreement. Just determine what portion is to be transferred from one spouse to the other, and include that in the agreement. The spouse that owns the IRA gned agreement to the financial institution and requests that the funds owed to the non-owner spouse be rolled into a separate account for the spouse.
So long as the retirement division is in your divorce agreement, you can divide these accounts without incurring any penalty fees or taxes.
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