Going through a divorce means having to divide everything that was amassed during the marriage. This typically includes major assets, such as the home and investment accounts. Some people are shocked to learn that their retirement accounts are also subject to division during this process.
Because it’s not possible to simply withdraw money from a retirement account without penalty before you’re at retirement age, people who are going through this need to have specific orders for the division. With these court orders, the penalty is waived for moving the money from one account holder to the other party.
What type of order is required to divide retirement accounts?
Retirement accounts that are covered under the Early Retirement Income Security Act of 1974 require a qualified domestic relations order (QDRO), but federal and military retirement plans require a retirement benefits court order (RCBO). Retirement accounts that don’t fall under either of those use a transfer incident to divorce.
QDROs and RCBOs must include specific information about the transfer. The court must approve the document, which is sent to the plan’s administrator. From there, the transfer will occur if all required information is included and the division is within the plan’s ability.
Dividing retirement accounts can be tricky, so anyone who’s in this position should ensure they have someone on their side who understands these matters. This may reduce the stress that can occur when trying to work through these complex situations during such a major life change.
