Don’t let an unfair divorce settlement cut you out of retirement benefits

People in the United States are living longer than ever before, and these days you need a good retirement plan. One major life event that can throw a kink in your plan, however, is divorce.

In addition to updating your estate planning documents to reflect your new situation, you may need to consider your options for a fair and equitable division of retirement funds. Retirement assets subject to division in divorce may include 401(k)s, IRA accounts, pension benefits and other investments.

In Massachusetts, the principle of equitable distribution applies to the division of marital property between divorcing spouses. Equitable distribution does not necessarily mean that property, including retirement funds, will be divided 50-50. It is therefore crucial that retirement plans are accurately valued and considered in relation to other assets in the marital estate.

Generally, if a spouse who didn’t directly contribute to a retirement fund wants to receive a portion or all of the fund in divorce, then a qualified domestic relations order, or QDRO, must be made. The purpose of a QDRO is to recognize the right of an alternate payee to receive retirement plan benefits.

A QDRO limits the designation of alternate payee to the spouse, ex-spouse, child or other dependent of the plan participant.

It should also be noted that division of retirement funds at divorce may have significant tax implications, given that pre-tax savings make up many retirement plans.

If you have questions about these or any other matters related to the division of marital property, then speak with a local divorce attorney with experience in asset valuation.