What's the best way to divide retirement assets in divorce?

Tennessee is an equitable distribution state. What this means is that, when couples divorce, their assets will be divided in a manner that is fair—if not, strictly speaking, equal.

When it comes to retirement assets, however, matters can quickly become confusing. Spouses must be attentive. Retirement holdings are not automatically included in divorce proceedings. As such, some individuals find themselves at an extreme financial disadvantage if they are not proactive in their pursuit of an equitable division of assets.

This can be especially perilous for older individuals as they enter divorce. Research indicates that, at present, 25 percent of divorces are between couples over the age of 50—the very people who are most to be dependent on retirement accounts in the near-term. If they fail to properly account for such savings, their financial futures can be incredibly worrisome. 

The ins and outs of QDROs

In most divorces, retirement funds can be addressed by means of a qualified domestic relations order, commonly called a QDRO. A QDRO is a legally binding document that delineates how certain retirement accounts – such as 401(k)s, IRAs, and private pensions – will be divided. 

QDROs are not established automatically. Spouses must request them from the relevant court as part of the property settlement procedure. Once in place, a given account will not simply be cashed out and split in two (as many individuals assume). Rather, the QDRO is submitted to the administrator of a given retirement or pension plan, who will mete out assets in the manner specified by the order.

It’s important to note that not all retirement assets can be included in a QDRO. As detailed by The Balance, government and military pensions are subject to different laws than most other retirement accounts, and cannot be covered in a QDRO. Other complex accounts – such as those involving unvested stock options – may also entail division via a separate process.

Are QDROs always the right choice?

In some cases, a QDRO may not be the optimal choice for a couple. One spouse might value a stable retirement income more highly than other assets, for instance, and be willing to give up property rights to the marital home in exchange for retaining a particular pension. Divorce is a negotiation, and there is always room for push and pull. Whenever possible, spouses should enter proceedings with the intent of reaching mutually beneficial outcomes.

To learn more about QDROs and other means of dividing retirement assets, it may be worthwhile to speak to a qualified attorney. An attorney will be able to draw on his or her experience and explain the benefits and drawbacks of various strategies, and help you develop a clearer picture of what’s best for you. 

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