Divorce in PA: Retirement Asset Division

Asset division. QDROs, or Qualified Domestic Relations Orders, are the primary way divorcing spouses can legally divide retirement benefits, which are tightly regulated by federal law.  The one exception is IRAs, which do not require a Court Order to divide.

The Employee Retirement Income Security Act of 1974, or ERISA, oversees many U.S. retirement plans, regulating how they must be set up and how they can be accessed. While ERISA generally protects the rights of the person who owns the account, it does make allowances for death and divorce and dictates how such matters must be handled. ERISA gives individual state’s leeway to apply regulatory standards through state divorce law.

In most cases, a judge MUST sign a QDRO before a retirement plan or Benefit Company can release a dime, and a separate, specific QDRO is often required for each retirement account to be so divided. In Pennsylvania, this responsibility goes to the court of the county that has jurisdiction over the divorce, and can be completed any time after the divorce complaint has been filed. Spouses need not be divorced to split assets.

A QDRO can direct that all, part or some of the specific retirement funds be paid to a spouse, former spouse, child or dependent, called the alternate payee. Typically, the exact amount ordered to be transferred is detailed in the couple’s Property Settlement Agreement. If there is no Property Settlement Agreement, or if the spouses decide to each keep their own accounts, no QDRO is needed.

Can retirement funds be accessed in divorce without a QDRO? In some cases, yes. It depends on whether the specified fund is an IRA or other retirement product such as a 401(k) or pension plan. By federal law, other methods of access such as early retirement or loans or early withdrawals, might not properly transfer ownership and can have huge tax burdens. In many cases, only a QDRO will legally transfer ownership of certain retirement funds without the payment of taxes – as long as they are transferred directly into another retirement account under the alternate payee’s name.

There are so many retirement investment companies and employer-provided plans with differing rules of how and to whom the QDRO must be filed that the preparation of QDROs has become a sub-specialty of law. While some divorce lawyers will still prepare QDROs, many, like me, prefer to assign this service to a firm that specializes in the preparation of QDROs. Such a law specialist has a regular relationship with a wide variety of plan administrators. This saves the client money – sometimes reducing the cost of the preparation of a QDRO by half – and gets them their retirement transfer more quickly.

The Department of Labor’s Employee Benefits Security Administration offers a detailed, 120-page guidebook about QDRO’s. I can parse this out for you in a few minutes. Contact my office for a free consult to discuss division of retirement assets due to divorce.