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Fort Myers Florida Family Law Legal Blog

Special orders are needed to divide retirement accounts

On Behalf of | Mar 8, 2022 | High Net Worth Divorce |

Married couples in Florida acquire various assets throughout their marriage. These assets have various values, but one of the more valuable assets couples may own are retirement accounts. These include 401(k) accounts, IRAs, pensions and other types of accounts. Many people fund these not only with their own contributions, but their employers are also contributing to them as well so contributions can rise rapidly. The accounts also accrue income through investments and over time the accounts can become very large.

These accounts like other assets are shared by couples during the marriage, but if the couple ever goes through a divorce, the retirement accounts must be divided like other assets as well. However, many retirement accounts are funded with pre-tax income, which means that it is only taxed when people withdraw it when they divorce. This creates complications when dividing them that are not present when dividing a checking or savings account.

Qualified domestic relations orders

In order to divide a retirement account, couples need to have a qualified domestic relations order (QDRO). This is a separate order from the divorce decree that specifically orders the plan administrators of the retirement accounts to release funds to the other spouse. The amount the other spouse receives can be a specific dollar amount or it can provide them a percentage of the total amount in the retirement account.

The QDRO allows the non-participating spouses to step in as if they were a plan participant. The spouse receiving the funds can even receive the funds without having to pay any taxes or penalties on the early withdrawal, as long as they  are rolling the funds over to another retirement account in their sole name. If the receiving spouse wants to receive cash instead of rolling the funds over, they are subject to penalties and taxes though.

Many people in Florida have 401(k)s through their employers or have IRAs and other retirement accounts. The portion of these accounts that was funded during the marriage is subject to division, but dividing them can be more complicated than dividing other financial accounts. Experienced attorneys understand how to draft QDROs and may be able to guide one through the process.