Kevin Qualls Family Law
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Addressing retirement plans in divorce

A complex divorce in California poses many challenges on dividing the house, car, household furnishings and bank accounts. Spouses should not, however, neglect retirement plans, such as a 401(k).

A 401(k) and other retirement plans are company plans offered to its workers. This asset is not jointly owned by the spouses and is a benefit an employer offers only to the spouse who is their employee.

The Employees Retirement Income Security Act of 1974 and the Internal Revenue Code govern the disposition of a 401(k) in divorce. Federal law prohibits the assignment of an employee's 401(k) to another person, even if that intended recipient is the employee's spouse. This ensures that these benefits go the employee upon retirement.

However, federal law contains an exception for an alternate payee. A family court may order a distribution to the worker's former spouse during divorce if ERISA procedures are followed.

If the court rules that the 401(k) should be divided between the spouses, a qualified domestic relations order must be submitted to the court for approval. A QDRO allows the transfer of assets to a former spouse or the nontaxable transfer of any part of a former spouse's 401(k). Any 401(k) transfers to a former spouse usually goes to that spouse's Individual Retirement Account to avoid tax consequences. Pension assets may also be transferred through a QDRO.

A QDRO may also assign any part of a 401(k) to a child or another dependent to comply with a child support order. Where the transfer is to a minor, the QDRO can require that payments are made to a guardian or trustee. These transfer, however, are rare.

It is important to determine the value of a 401(k) before entering a property settlement or court proceedings. If its value is disputed, a plan administrator or qualified actuary can provide valuation information.

An attorney can help assure that property division of a 401(k) and other assets is fair and reasonable. A qualified attorney can gather information that assists a spouse with protecting their rights at the end of a marriage.

Source: The Stamford Advocate, "Don't overlook a 401(k) in a divorce," Julie Jason, June 25, 2017

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