Alaska Divorce Lawyer & Attorney : Peg Roston Law Firm : Property Division, Net Worth, Division of Assets : Anchorage, Alaska

Retirement benefits accumulated during marriage are subject to division a divorce case. This post gives some basic information about two common types of employer sponsored retirement plans: (1) the defined contribution plan and (2) the defined benefit pension plan.

Defined contribution plans

A defined contribution plan provides an individual account for each participant. An employee’s benefits depend on the employee’s contribution to his/her account unless the plan calls for the employer to make matching contributions. In simple terms, a defined contribution plan provides an employee with a tax-deferred savings or investment account. The balance in the account may fluctuate depending on the type of investments held in the account. The 401(k) plan is the most common type of defined contribution plan.

      Defined benefit plans.

A defined benefit plan provides an employee with a monthly payment at retirement based on a formula, which may incorporate many factors such as years of employment, the employee’s pay, and the age at retirement. For example, the State of Alaska PERS uses a formula which first calculates averages the three highest annual wage earned  by the employee. The formula is then: the average "high three" times .02 times (for the first twenty years) times the number of years of employment.  After 20 years the multiplier is increased to .025. 

Under federal law, a state divorce court can divide retirement benefits in either type of plan by entering a Qualified Domestic Relations Order. If either you or your spouse has accrued benefits in either type of plan, you should talk to your divorce attorney about dividing these benefits.                     
If I am settling or trying a case involving retirement benefits, my “team” includes a pension expert such as David Watson to advise me on how to best divide plan benefits. Often I will suggest to the other attorney that both sides retain David to write the Qualified Domestic Relations Order(s).  Dividing benefits in a defined benefit plan can be complicated.  It is well worth spending the money to make sure the benefits are divided correctly at the time of divorce.  David Watson's email is david@qdroalaska.com
 

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 A recent article in the Chicago Tribune answers basic questions about splitting retirement accounts between divorcing couples.  The name of the article is "Court Order Needed To Split Retirement Accounts In Divorce."  It explains that a retirement account can be divided on a tax-free basis, if the account is divided pursuant to a court order.  This applies not only to a 401(k) account, but to an individual retirement account (IRA) as well.  But be aware that an IRA is subject to section 408 of the Internal Revenue Code and not section 401 of the Internal Revenue Code.  If you have any questions about this you should talk to your lawyer or tax accountant.

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For many couples, an employer-sponsored 401(k) plan account, can be the most valuable asset in a marital estate.  Federal law allows a state court to enter an order dividing the marital share of a 401(k) account and other types of retirement benefits  between the spouses.  The order is known as a  Qualified Domestic Relations Order, which is abbreviated as "QDRO."  Most plans have a sample QDRO, which they give to the attorney or pension consultant who is going to be writing the order.  You and your attorney should be aware that some plans are now actually charging a fee for processing a QDRO, even if it was prepared using the plan's own sample order.   According to a May 21, 2008 post in the Divorce Law Journal, a plan can pass on the cost of processing a QDRO to the employee or spouse if it is allowed under provisions of the plan.    It is important to know whether a plan charges a processing fee.  It is always better to cover details such as allocating processing fees before the divorce is final so that once the decree is entered there is nothing left to do.

 

 

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