When you and your spouse have spent years or even decades accumulating significant assets, including pensions and retirement plans, you may be very concerned about ensuring the division of these assets is fair if you are facing divorce. If you are nearing retirement or are retired and are facing divorce in northern Snohomish County you need to know how the division of your and your spouse’s retirement assets will be handled.
Do I have a right to a share of my spouse’s retirement benefits?
Pensions and retirement benefits earned before marriage are generally considered separate property belonging to the spouse who earned them. It may surprise you, then, to learn that in Washington, retirement benefits — including 401(k)s and pensions — earned during the course of the marriage are considered community property. This means that you and your spouse share an ownership interest in them. Any increase in a pension or retirement plan during the course of the marriage is also considered community property to which both you and your spouse have an ownership interest in. However, before claiming these assets it is important to obtain a Qualified Domestic Relations Order (QDRO,) so these retirement assets can be divided without being subject to taxation.
What is a QDRO?
A QDRO is an official decree from the court that divides a retirement plan between spouses. It permits one spouse to roll over payments from their ex-spouse’s plan into their own individual retirement account (IRA) tax free. Even if your divorce decree states you have a right to part of your spouse’s retirement plan, you still need to obtain a QDRO to avoid making the transaction a taxable event. Keep in mind QDROs are only applicable to plans covered by the Employee Retirement Income Security Act (ERISA). QDRO’s cannot be used to divide IRAs, although IRA’s can be divided through the divorce decree.
Learn more about property division in Washington State
Retirement accounts can be some of the most valuable assets a couple owns, so it is important they are divided fairly in a divorce without being subject to unnecessary taxation. Our firm’s webpage on asset division may be of interest to those who want to learn more about this topic.