Pensions, QDROs and the Effect of a Divorce on Your Retirement Plan

Pensions, QDROs and the Effect of a Divorce on Your Retirement PlanWhen you and your spouse get divorced in Tennessee, your marital assets – those assets, properties and debts which you accumulated during the course of your marriage, generally speaking – will be divided equitably by a family law court judge. Some couples choose to divide them up themselves, and have their divorce attorneys create marital dissolution agreements (MDAs) that detail where those assets go; others might outline all of that information in a pre-nuptial agreement. But for a lot of couples, a judge will make the decision about what goes where and why.

Your retirement funds are included in those marital assets, and will therefore be divided up as well. Now, it might seem as though pensions should stay with the person who earned them; after all, unless you co-owned a business together, wouldn’t only one of you have contributed financially to that fund? That’s not how it works – even though some pensions aren’t divisible for various reasons best discussed in my office – and knowing that before you come meet with me or the judge is helpful, because it can help to stop some arguments before they begin.

Once the decision has been made to divide the pension, an attorney like me will create a Qualified Domestic Relations Order, or QDRO. The QDRO will be entered into the court within 30 to 60 days (depending on your circumstances and the details of the retirement plans) of the final decree of your divorce. Only the assets in the pension (both vested and unvested) at the time of the divorce is subject to division. Thus, any money you earn in your pension after your divorce cannot be divided.

That last statement is important, because there are two ways for a judge to divide a pension: immediate offset and deferred distribution:

  • Immediate offset. The court figures out how much your spouse should receive from your pension, and then awards a “lump sum” payment of that amount. For most people, that sum would come from the sale of the house or out of the split of assets.
  • Deferred distribution. Your spouse will be awarded part of your pension once you reach retirement age. The amount will already have been decided, so any additional money or interest accrued will not affect how much of your pension your spouse will receive. QDROs are used to facilitate that payment.

Divorce is a complex process, but when you have substantial assets or retirement accounts, it can be even more challenging. You want an experienced Maryville divorce lawyer on your side to help you wade through the paperwork, and to offer you practical counsel. I fight on behalf of my clients for the best possible outcome, but I also pride myself on giving them a realistic view of what they might expect, and help them plan for the future.

If you and your spouse are considering a divorce, I’d like to help you. Please contact my firm – Kevin W. Shepherd, Attorney at Law – to find out more about my divorce and family law services.