If you’re like most adults, you’ve spent a considerable portion of your life working to help procure funds for your retirement account. However, when you and your spouse file for divorce, you may wonder what will happen to these funds. Generally, your spouse is entitled to the assets you’ve secured, as they are considered community property. As such, a special form, called a Qualified Domestic Relations Order (QDRO), is necessary to remove the assets from a retirement account. If you’re unsure how a QDRO works or if you need one for your divorce, you’ll want to keep reading. The following blog and a Monroe, Louisiana, property division lawyer can help guide you through these difficult times.
What Is a QDRO?
In Louisiana, all assets obtained during marriage are considered community property. As such, these assets are automatically divided evenly between the parties, regardless of each party’s contribution to the marriage. This includes the assets held in retirement accounts.
Generally, a QDRO is necessary to divide the assets held in retirement accounts during a divorce to avoid a tax penalty. When you remove funds from a retirement account early, meaning before age 59 and a half, there is a hefty 10% tax penalty on the withdrawn funds. However, a QDRO allows for the early withdrawal of these funds without the penalty.
However, you should note that to avoid the penalty, even with a QDRO, the recipient spouse must deposit the funds into a retirement account. If the funds are deposited into any other type of account, they will be taxed on the money.
What Accounts Are Covered?
It’s important to understand that only certain retirement accounts are covered under these orders. Generally, these only apply to retirement accounts protected under the Employee Retirement Income Security Act (ERISA). These include, but are not limited to, the following:
- 401(k)s
- Pension plans
- Profit-sharing plans
- 403(b)s
- Defined Contributions
- Employee stock ownership plans
You’ll notice that IRAs are not included in this list. As such, this asset will be included as part of your divorce decree, as the transfer of funds from an IRA during a divorce is generally tax-free.
It’s imperative to understand that, regardless of what type of account you are dividing or if a QDRO is necessary, only the funds obtained over the course of the marriage are subject to division. For example, if you have a 401(k) with $20,000 in it before the marriage, and you earn an additional $60,000, your spouse would only be entitled to half of the $60,000. The initial funds in the account would remain your separate property.
If you are ready to file for divorce in Louisiana, ensuring you connect with an experienced attorney with Breithaupt, DuBos, & Wolleson, LLC is in your best interest. Our team understands how difficult these matters can be to navigate on your own, which is why we will do everything in our power to help you through this process. Contact us today to learn how we can assist you with these matters.