High Net Worth Clients – Retirement and Pre-marital Assets, Part II
May 27th, 2012
TWIN CITIES DIVORCE ATTORNEY
Premarital assets are, by definition, those assets a party brings into the marriage. With people marrying later, and often marrying more than once, those assets can be sizeable. For couples who enter a marriage with substantial retirement assets in 401(k) or IRA accounts, or through employer pension programs, the issues can be particularly tricky.
Even seemingly straightforward divisions of retirement accounts can become tangled very quickly. This is because many retirement accounts are bound by Qualified Domestic Relations Orders [QDRO]. These orders, which divide the ownership of retirement accounts, are drafted after a divorce decree and are reviewed by the retirement plan administrator to ensure compliance with the federal Employee Retirement Income Security Act [ERISA]. If there are military or federal or state, county and municipal civil service retirement plans, there are similar orders that govern the division of those assets. At Banas Family Law, P.A., our attorneys are experienced in every aspect of QRDOs and division of retirement assets and can help work through any issues that arise.
The QDRO gives ownership in the employee's pension plan to an alternate payee - the ex-spouse. For example, if a couple has been married for ten years and then divorces, a couple may negotiate a divorce judgment where the ex-spouse will get half of what the retirement account accrued during the ten years of marriage. This seems straightforward, except that the courts and the employee want to keep that money in the retirement account to continue to earn interest. If there aren't enough divisible assets to offset this portion of the settlement, the ex-spouse will have to defer obtaining that set amount until the employee retires and the funds are disbursed. That may be in five years, or it may be in twenty years. In any case, the court will issue a divorce judgment and decree which sets out the need for a QDRO and the order will be created and administered in order to ensure a fair distribution of the assets. Because there can be massive penalties for early withdrawals from pension and retirement accounts, courts are careful to ensure that the division adhere to ERISA regulations.
Some of the plans that are covered under QDROs include the following:
- Deferred compensation
- Profit sharing
- Roth IRA
- Traditional IRA
- Social Security benefits
- Company pensions
Dividing assets in any circumstance is difficult at best. Where state and federal laws control the distribution of the assets, Banas Family Law can work with you to ensure that you are in compliance.