Pension IRA

A common question by a client is whether the above items are considered marital property and therefore divided at divorce. The simple answer is “Yes”.

All property, regardless of how it is titled, acquired during the marriage is marital property. Houses purchased during the marriage, regardless of how titled, are marital property. Likewise, one spouse’s pension, profit sharing, deferred compensation and employee savings plans, as well as one’s 401(k)’s and IRA’s are marital property and will be divided by the Court. The fact that only one spouse may have “earned” these benefits at an out-of-the house job does not mean that the at-home spouse does not share in these accounts.

How does the Court divide these assets without creating tax consequences to the parties? In Pennsylvania, the parties prepare a Qualified Domestic Relations Order (called QDRO and pronounced “quadro”). This QDRO is a special Order of Court, that is signed by a Judge and forwarded to the Pension Administrator, brokerage house or the individual who manages the account. This Order will permit the account manager to carve the account into two pieces, one for the wage earner and the other part for the non-wage earner spouse.

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For example, let’s say that Dale has a pension valued at $300,000.00 from 25 years of work at ABC Corp. Dale is married to Dana and they are getting divorced. Dana has no pension and this is the only asset of the marriage. A QDRO would be signed, for example, dividing this pension 50/50. Dale would retain a pension worth $150,000.00 and Dana would receive an IRA valued at $150,000.00. There would be no tax consequences for either party.

DO NOT divide retirement benefits without the use of a QDRO. If you do, the recipient will pay income tax on the proceeds and the payor will have severe penalties for dividing the retirement account without a QDRO and may have his or her plan invalidated by the IRS.

Only a person specifically trained in drafting QDRO’s is qualified to draft a QDRO. This is a highly technical field.

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