When you divorce your spouse, you may be entitled to half his retirement money. However, there is no guarantee that you'll receive any money at all. You should understand the proper procedures involved in receiving part of your former spouse's 401k benefits.
In order to have retirement accounts divided between two people, a court must order a qualified domestic relations order (QDRO). The QDRO allows this separation of the funds from the original account. Then, you will be required to set up a new retirement account for the funds to be deposited into. This new retirement account may be a 401k plan at your current employer or an IRA, if your employer does not offer a 401k plan or you are unemployed. Once the funds have been deposited, the transaction will be complete. Normally, your spouse's plan administrator will handle the transfer of funds to your new retirement account after they receive the order from the court.
The transfer of funds through a QDRO means that you now own the funds. You may make additional contributions to the account, take loans (where permissible), invest the proceeds and make withdrawals, all according to the rules of the new plan. Your spouse has no choice but to comply once the order has been issued.
The benefit of a QDRO is that you receive money that you may have contributed to your spouse's retirement plan (this is true if you and your spouse commingled funds during your marriage). You may also get a "head start" in saving for your own retirement if you were a stay-at-home spouse taking care of children while your spouse worked. Although you may be forced to find a job, you won't have to start over in terms of saving money for retirement.
You cannot obtain retirement funds without a QDRO. You cannot settle outside of court. If you try, the transfer will be regarded as a distribution. Taxes and penalties will be due on the account transfer. While you won't be the one who is liable for taxes and penalties, it would affect you in terms of a reduced benefit transfer.
- DOL: FAQs About Qualified Domestic Relations Orders
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
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