Divorce and QDROs, Retirement Accounts, Tax-Deferred Accounts, Pensions, 401ks, Annuities, IRAs, 403bs, Stock Options
In many divorces, equitable distribution of retirement accounts, pensions and tax-deferred accounts must be dealt with. Tax-deferred or retirement accounts may include 401ks, IRAs, annuities, 403bs or other investment vehicles. In addition, stock portfolios or stock options, some as RSUs or restricted stock options or other vehicles must also be equitably distributed. What may seem initially as a complex matter can often be broken down into a simplified method for equitable distribution. If you are contemplating divorce and have questions regarding the distribution of pensions, retirement accounts, tax-deferred accounts or stock options, contact our offices in East Brunswick or Fort Lee at 732-390-0480 or 201-242-1119 for a free consultation. Nights and weekend appointments are available. And ask us about our flat fees for uncontested divorces.
QDROs, or qualified domestic relation orders, are orders by a court to equitably distribute an asset, generally a pension or tax-deferred account. The process generally is first that a statement on the asset is obtained, this informs the drafting of the order itself. What is more complex is that every retirement entity may do things differently, so once the entity and the retirement vehicle are identified, the rules for equitable distribution of that asset may be identified for purposes of drafting of the QDRO.
Of critical importance is the ability to have survivorship benefits for the alternate payee or the spouse who is not the payee of the defined contribution or defined benefit plan. Survivorship rights generally allow an alternate payee to retain the right to receive benefits regardless of whether the payee has died before or after going into pay status on a pension or before distribution of a tax-deferred account.
An additional issue is whether or not there are existing loans against either a pension or tax-deferred account and whether that loan for purposes of equitable distribution will be considered marital and payable by both parties or non-marital.
Survivorship rights and loans against an asset can both reduce the payout of the pension and/or tax-deferred account.
Generally, that part of a pension or tax-deferred account that accrued during the marriage is to be equitably distributed with a 50/50 split. Although the parties can choose however they wish to distribute the asset and may even waive entirely an asset. Parties with comparable retirement accounts often choose to waive each other's, so that a QDRO is not necessary to distribute the assets and they remain solely in the name of that individual.
Tax-deferred or retirement accounts that are distributed via a QDRO are typically distributed via a roll-over IRA, where the monies for the other spouse are rolled into an IRA in their name. That way it is not a taxable event and there is no withdrawl of monies at that time that are taxable.
As to stock options, if the options accrued during the marriage, they are generally equitably distributed, but often not until they are exercised as many options are not transferable, so when the options are ultimately exercised, after taxes, half the gains may be distributed to the other spouse.
Call us know for your free consultation regarding your divorce and equitable distribution of your pension or other retirement assets.