Most retirement accounts fall into one of two categories: (i) Defined Contribution Plans or (ii) Defined Benefit Plans.
A “defined contribution plan” is a plan in which the employee and/or employer make monthly defined contributions to a qualified retirement account in the employee’s name. 401(K) accounts, Individual Retirement Accounts (IRAs) and the Thrift Savings Plan (TSP) are perhaps the most common defined contribution plans.
A “defined benefit plan” is a pension. An employee accrues this benefit as he or she works and then receives a monthly defined benefit upon retirement based on a predetermined formula. The Federal Employees Retirement Systems (FERS), Civil Service Retirement Systems (CSRC), and Virginia Retirement Systems (VRS) are all examples of defined benefit accounts. Similarly, military pensions, foreign-service pensions, and other civil service pensions are defined benefit plans.
Like other forms of property the divisible portion of a retirement account is likely limited to that portion acquired between the date of the parties’ marriage and the date of the final separation for purposes of divorce. For example, say you’ve been contributing to your 401(K) retirement account (a defined contribution account) for a total of 20 years. You contributed to that account for 5 years prior to your marriage and then for another 15 during your marriage. The 15 years of contributions during your marriage is likely the “marital property” subject to division and the 5 years of contributions prior to the marriage is likely your “separate property.” Thus, if your spouse was awarded one-half of the marital share of your retirement account, he or she would receive an amount equal to 7.5 years of your contributions (e.g. one-half of 15), plus gains and losses on that share through the date of division.
Dividing a defined benefit account works much the same way. Say you have 20 years of credible service with your employer – you worked for 5 years prior to your marriage and then for another 15 during your marriage. If your spouse was awarded one-half of the marital share of your pension, he or she would receive an amount equal to 7.5 years of your contributions, plus gains and losses on her share through the date of division. With a pension, however, the award is typically expressed as a fraction: the numerator being the total number of months of credible service during the marriage and prior to separation and the denominator being the total number of months of credible service through the date of retirement. This fraction is then multiplied by one-half.
Dividing a qualified retirement account typically requires the entry of a special order that effectuates the transfer without either spouse incurring an early withdraw penalty or contribution limit. Sometimes these orders are referred to as Qualified Domestic Relations Orders (QDROs), though the precise document you will need will depend on the nature of the account being divided.
If significant retirement assets are at issue in your divorce, I encourage you to speak with an attorney. Often the consequences of small errors in the division of these assets or the wording of the orders themselves can have large consequences. Also, a fair amount of gamesmanship may occur during the process such as withdraws from accounts for questionable purposes, forgotten or concealed loans taken from accounts, or, in the case of military pensions, shielding a portion of the pension by claiming disability.
If you’ve got questions about these issues, feel free to drop me a line. Jason A. Weis, Esquire – Curran|Moher P.C. – firstname.lastname@example.org – 3554 Chain Bridge Road, Suite 100, Fairfax, VA 22030 – 571-328-5020.
Your spouse’s retirement account may be his or her largest asset and as part of the property division associated with your divorce the Court may apportion that account between the two of you. Often, for example, the court will equally divide the “marital share” share of a retirement account (i.e. it will evenly split the amount contributed during the marriage).
Procedurally, how does that happen? In most cases, it happens with a Qualified Domestic Relations Order (QDRO). These orders facilitate the transfer of retirement funds from one retirement account to another without the early withdrawal penalties you might otherwise expect. QDROs or similar orders are used to divide for retirement accounts such as 401(K) plans (a.k.a. defined contribution retirement plans), pension plans (a.k.a. defined benefit retirement plans), military retirement benefits and federal government retirement benefits such as Thrift Savings, FERS and CSRS benefits.
Drafting a QDRO is difficult work for reasons I won’t bore you with. These orders are NOT something a non-lawyer should attempt to draft. In fact, many lawyers in Northern Virginia avoid drafting them at all costs. If you have a question about the division of retirement accounts, what benefits you might be entitled to or how these orders get drafted, feel free to drop me a line.
Jason A. Weis, Esquire – Curran|Moher P.C. – email@example.com – 3554 Chain Bridge Road, Suite 100, Fairfax, VA 22030 – 571-328-5020.
My experience and background reflect the hallmarks of success one must demand of a lawyer in Northern Virginia's legal landscape. As a native of this area, I have here focused my practice on providing sound and balanced representation to clients navigating the difficult legal waters of family law, including contested divorce, custody, visitation, spousal and child support, and equitable distribution. More >>>
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