DIVIDING RETIREMENT ASSETS – Getting it RIGHT so you can get it WRITTEN.
Dividing retirement assets is an important issue for couples entering the process of separation and divorce. Retirement assets are often the most valuable marital assets a couple has along with their marital residence. Whether the couple is in mediation, using Collaborative Law, or negotiating in a traditional litigation model the first step is to gather all the information that is available about each asset before negotiating. It is very important to get all the details associated with each asset so they can be discussed and decisions can be made with full disclosure and informed consent. Once the parties have decided how they will be dividing retirement assets, a qualified domestic relations order (QDRO) or a Domestic Relations Order (DRO) will be required to distribute the asset without tax and penalty associated with the transfer (with the exception of IRA transfers).
There are different types of retirement assets including Defined Benefit Plans (often known as Pensions), Defined Contribution Plans- 401(k)’s 403(b)’s, Individual Retirement Accounts (IRA’s), Deferred Compensation Plan’s, Profit Sharing Plans, Cash Benefit Plans, etc. It is important for the couple to understand what kind of assets/benefits they each own, and the specifics about each asset. They should be prepared to provide information to the attorneys or mediators with whom they are working. This will help to determine if an asset is marital, or if some of it is separate property. Once the asset has been property classified and all of the information about the benefit has been obtained then the parties can negotiate the division of the asset.
When one or both of the parties has a Defined Benefit plan (Pension), then the Summary Plan Description (SPD) for that plan should be obtained by that party and reviewed by the professionals working with the parties. That SPD contains the information and options related to the pension benefit. It is also important to obtain the employment history for the participant including any breaks in service and find out if there are any prior QDRO’s related to the pension.
When one or both parties has a defined contribution plan(s) such as 401(k), IRA, Profit-Sharing, etc., then the parties should obtain the most recent Account Statements- quarterly, semi-annual, or annual and any other documents describing the type of account and account options.
The best practice for negotiating the division retirement assets is to get ALL the information BEFORE negotiating the agreement. Detailed instructions related to the division of the assets must be included in the final settlement or separation agreement so that the ORDER, QDRO, DRO, or Divorce Decree can be accurately drafted to accomplish the intent of the parties. If the settlement/separation agreement does not contain the correct language and particularly if it is silent as to survivor benefits those benefits cannot be subsequently drafted into the domestic relations order. The bottom line is – GET IT RIGHT in your settlement so you can GET IT WRITTEN in to the final Order which will distribute the retirement asset.