Retirement plans are important assets in divorce

On Behalf of | Aug 10, 2020 | Divorce |

Once a Texas couple decides to divorce, their assets will be determined and divided. For some former couples without a lot of joint property, the division might not be as complicated as in some high-asset divorces, but a valuable property not to be overlooked is a retirement plan. For an ex-spouse to receive payments from a participant’s retirement plan, a qualified domestic relations order, or QDRO, must exist.

A QDRO allows an ex-spouse, child or dependent to receive a portion of a plan participant’s retirement account payment after a divorce. The payment is calculated by multiplying the participant’s investment in the plan by a fraction. The numerator in the fraction represents what the ex-spouse will receive, and the denominator represents the total value of the benefit the participant will receive. An ex-spouse who receives a payment from a participant’s retirement plan will have to report it as if they were also a plan participant.

To make sure a QDRO is complete, the name and mailing addresses of the participant and each of the other people receiving a payment, who are also called alternate payees, must be included. Additionally, the percentage of the payment that will be paid to each alternate payee must be included. Once an ex-spouse receives a payment as an alternate payee as a result of the dissolution of a marriage, they can roll over the payment into another retirement account tax-free in the same way that the plan participant would be able to do.

Getting ready to negotiate a divorce settlement takes a lot of planning and preparation. Someone in this situation might choose to speak to a family law lawyer to seek advice and assistance during this process. A lawyer might offer help with collecting and organizing documents, filing the proper paperwork with the court and representing their client.