Retirement benefits can be tricky to divide during a divorce. Unlike other assets, retirement benefits are often intangible – they are not physical objects that can be given or kept from the other party, they are often controlled by third party administrators, and any dividends they yield may not be realized for decades. Nevertheless, due to the time accruement associated with retirement plans, they are often among, if not the most, valuable assets a party may own. If a divorce goes to trial, a retirement benefit is often involved.
How Do Courts Split Retirement Benefits?
Some states, like California, are community property states. Under community property, each spouse is entitled to half (50/50) of every property obtained during the marriage. Most states follow “equitable distribution,” where the judge divides property in a manner that the judge deems fair and equitable, though not a 50/50 split.
Regardless of the state you file for divorce in, you will likely be using a Qualified Domestic Relations Order (QDRO). A QDRO is a court order dividing retirement benefits such as 401(k) s, IRAs, and petition plans. You must have a QDRO to divide a retirement benefit, or the plan administrators will not be able to legally partition it. The QDRO must contain the following information for it to be legally valid:
- The formal name of the plan,
- The full name and last known mailing address of both parties,
- The amount or portion of the plan benefit payable to the alternate payee and the method to be used to calculate such amount,
- For a defined benefit plan, the duration for which the benefit is payable to the alternate payee,
- The social security number of both parties; for privacy, the numbers may be on separate cover sheets.
After the retirement plans are divided, receiving spouses can either opt to receive a cash payment immediately or wait until their ex-spouse cashes out his or her plan. The cash payment is a onetime offer only – if the receiving spouse chooses not to exercise it, he or she will not receive a payment until the spouse who owns the plan begins collecting on the plan. Note that if the receiving spouse takes the cash payment before he or she turns 59½, the cash payment is subject to a 10% tax penalty.
What About Social Security?
Unlike private retirement benefits, social security cannot be divided between (ex) spouses. Instead, each individual can collect social security based on an ex-spouse’s record. The benefits do not come from one spouse to another; the spouses draw from the federal government, but use each other’s information to maximize their gains. Furthermore, your spouse doesn’t need to be collecting social security for you to collect yours; as long as your former partner qualifies for social security, you will be able to draw based on his or her record.
In order to receive benefits based on an ex-spouse’s record, you must meet the following requirements:
- Your marriage was a long term marriage (10 years or more);
- You are not currently married;
- Your ex-spouse is age 62 or older;
- The benefit that you are entitled to receive as an ex-spouse, is greater than the benefit you would receive based on your own work record; and
- You would normally be entitled to Social Security retirement benefits
These requirements may change how spouses approach a divorce. For instance, if you’ve been married for nine months, you may wish to delay your divorce so that you can qualify for social security benefits as a long term marriage.
Social security benefits can be worth tens of thousands of dollars, so parties should seriously consider these benefits before making a major decision such as filing for divorce or getting remarried.
Authored by Jason Cheung, LegalMatch Legal Writer and Attorney at Law
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