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How are retirement plans divided in divorce?

On Behalf of | Sep 5, 2019 | Divorce |

One of the key issues involved in many Georgia divorces is dividing up retirement plans so that the two spouses each receive a share. Court orders can require many different retirement plans to be split up, sometimes by the use of a Qualified Domestic Relations Order (QDRO). Here is a look, provided by Forbes, at how some common retirement plans are divided between divorcing spouses.

An Individual Retirement Account, commonly termed an IRA, is not complicated to split up. Once a court figures out the share each spouse will receive, the spouse who does not own the IRA is usually left with two choices, to spend the proceeds or roll his or her share from the IRA into a separate retirement account. Some spouses find it preferable to save the money since spending it can incur taxes and premature withdrawal penalties.

QDROs are generally needed to divide employment retirement plans. Some retirement plans, such as 401(k)s, are defined contribution plans. These plans are divided as the court deems appropriate, leaving the spouse who does not own the plan to spend the proceeds or roll them into a separate account. Conversely, a defined benefit plan, such as a pension, is more complicated to divide since it has no present cash value, instead promising a payment each month when retirement comes.

Typically, courts divide up a defined benefit plan in three ways. A court may grant a spouse a lump sum payment at the present moment. Alternatively, a court can choose to split the benefits between the spouses when the time comes for benefits to be paid out. However, a court may also put off a settlement and instead reserve the right to order benefit distribution at a future date.

When it comes to the complexities of dividing up retirement plans, consulting with a legal professional can be of great assistance. Since divorcing couples will have varying needs regarding their retirement plans, do not read this article as actionable legal advice; it is only intended as general information on this topic.