Can a retirement account be divided in divorce?

On Behalf of | Apr 6, 2021 | Divorce |

Imagine two married couples. Mary and Martin have been married for many years. Mary has a number of jobs over the years, but Martin has worked at XYZ Widget Co. throughout the marriage. Every time he receives a paycheck, a little of it goes into his retirement account. After a number of years go by, this account is quite valuable, but he cannot withdraw funds from it until he retires. If he tries to withdraw funds before then, he will face large penalties, and will lose much of the value of the account. Still, he and Mary feel secure knowing that when Martin retires, he will be able to close the account, and they will have a good amount of money to help fund their expenses for the rest of their lives.

Meanwhile, things don’t work out for the other married couple, Andrea and Albert. They decide to divorce. Like Martin, Andrea has worked at XYZ Widget Co. for many years and has a retirement account. Both Andrea and Albert were counting on that account to help fund their retirement years. Now that they are splitting up, does Andrea keep the whole account? That doesn’t seem fair. But, since Andrea hasn’t retired yet, how can they divide the account and divide it without incurring a hefty penalty?

Qualified Domestic Relations Orders

One way Ohio courts deal with this type of issue is by using something known as a Qualified Domestic Relations Order, or QDRO. A QDRO is a court order that, among other things, can allow a divorcing couple to divide a retirement account without incurring a penalty for early withdrawal.

The QDRO goes from the court to the administrator of the retirement plan. Once the administrator approves the division of the account, part of the funds of the account are deposited in a new retirement account for the ex-spouse. Now there are two accounts which cannot be withdrawn without penalty until retirement.

QDROs apply only to certain tax-qualified types of retirement accounts. There are some types of retirement accounts that can be divided without a QDRO, although some may impose penalties for early withdrawal.

Complex property division

Dividing a retirement account is a complex process, and it is important to get it right. In many marriages, a retirement account is among the largest single assets in the marital property. It’s also one that becomes crucial to the wellbeing of the ex spouses once they are no longer in the workforce.

If you are considering divorce, be sure to talk to an experienced attorney about your options for dividing retirement accounts.