HOW 401(k), PENSIONS, & IRAs GET DIVIDED DURING A DIVORCE - VIDEO #17 (2021)

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Third tutorial video in series on to divide retirement assets during a divorce using a QDRO (Qualified Domestic Relations Order). This video discusses what happens after you have filed your QDRO with the court and it has been approved by the retirement plan administrator, as well as a variety of other issues related to the division of retirement assets.

If you have a defined contribution asset such as a 401(k) account, the administrator will send documents to the non-employee spouse asking that spouse how they want their share of the account handled. The spouse will be given at least a couple of options. One option may be to have their share remain in a separate account with the administrator. Another option may be to have their share paid out to another retirement account custodian, such as the custodian of an IRA. Your spouse can open an IRA account with a bank and have their share of your 401(k) rolled into the IRA account. This is what most people do. A third option is to take a cash distribution. Most people don’t take a cash distribution because, if they do, they will have to pay state and federal income tax on the distribution.

If the QDRO pertains to a pension, then there are no account funds to pay out. Instead, your ex-spouse will wait until the pension becomes payable. When the pension becomes payable, they will receive their share of the pension each month directly from the pension plan administrator. It is very important after the QDRO is in place that your ex-spouse keep the pension plan administrator informed as to their address. QDROs always set forth the address of both parties. However, if the pension isn’t paid out for another ten or twenty years, it is likely that one or both parties will move multiple times in that ten or twenty year period. When it comes time to pay out the pension, if the administrator does not have a current address for you or your spouse, the administrator is not going to know where to send the pension payments.

The person that earned the pension is the “participant”. The other spouse is the “alternate payee”. Let’s say the pension plan provides that the “earliest retirement age” is 55. The participant reaches age 55, does not want to retire, but instead intends to work until age 65. The alternate payee wants to start receiving their share of the pension when the participant turns 55. Many pension plans include a “Gilmore” provision that will permit the alternate payee to start receiving their share of the pension as soon as the participant reaches the earliest retirement age, even if the participant elects to keep working.

You have to be very careful when it comes to identifying retirement assets. Many people don’t understand what retirement assets they have. It is very common for people to think they only have a 401(k) account and not realize they also have a pension. Some employers offer multiple types of retirement benefits. You don’t want to overlook any retirement asset. If you are getting divorced, both you and your spouse should check with your employers to confirm you know about all retirement assets you have.

QDROs apply to “qualified” retirement plans. An IRA account is not a “qualified” retirement plan. You do not need a QDRO to split an IRA account. All you need is a court order. For example, assume you have an IRA account in your name that contains $50,000 and it is all community property money that will be split with your spouse. You can’t just take $25,000 out and pay it to your spouse. If you were to do that, you would have to pay state and federal income taxes on the withdrawal, plus an early withdrawal penalty if you are not age 59 and a half. What you need to do is to get a court order that awards your spouse the $25,000 from your IRA. The court order you need will be your divorce judgment. The divorce judgment needs to include a provision that spells out what amount or what percentage of your IRA your spouse is to receive.

When you are dividing retirement assets, your divorce judgment needs to set forth the basic agreement about how those assets are to be divided. A QDRO is a document that is separate from the divorce judgment. Your divorce judgment may state in general terms that the community property interest in your 401(k) account or your pension will be equally divided by means of a QDRO. You will need follow up the divorce judgment by drafting a QDRO that will contain more detailed language explaining exactly how the community property interest will be equally divided. It’s not enough that your divorce judgment states that the community property interest in certain retirement assets will be equally divided. You also need to have the QDROs.

Видео HOW 401(k), PENSIONS, & IRAs GET DIVIDED DURING A DIVORCE - VIDEO #17 (2021) канала Free Divorce