Divorce is complicated. Between navigating parenting plans, dividing assets, and all of the emotion that comes with this process, there are probably a thousand things on your mind. Retirement assets can be among the largest during a divorce, so dividing them requires a thorough process. When it comes to retirement benefits and divorce, for those who have filed for divorce, there are a few different approaches to navigating these circumstances. If you are currently facing divorce and navigating your retirement benefit situation, here are some thoughts to keep in mind to help this process run smoothly.
Each divorce is different and no solution is one size fits all. At Seattle Divorce Services, we see many parties who agree to each keep their own personal retirement benefits and take advantage of other assets to balance out the division of property. Typically in divorce, we don’t divide each asset. Instead we make “piles” on each side in hopes of ending with relatively equal division of assets. For example, we may give assets 1 and 2 to one party, 3 and 4 to the other party, and divide up asset 5 in order to make both parties relatively equal.
However, not all couples have adequate retirement plans. In some cases, one spouse has been counting on their spouses retirement benefits for a long time. In the case of retirement benefits and divorce, if one spouse has a lesser plan or none at all, there are many ways to ensure that person is not left without something to count on after retirement. If an arrangement where each spouse gets their own retirement plan and assets are otherwise equally divided will not work, some other options are listed below.
The U.S. Department of Labor defines a Qualified Domestic Relations Order (QDRO) as an order that “creates or recognizes the existence of an alternate payee's right to receive, or assigns to an alternate payee the right to receive, all or a portion of the benefits payable with respect to a participant under a retirement plan, and that includes certain information and meets certain other requirements.”
Essentially, this type of solution is helpful when only one party has a significant retirement plan. If this is the case, you can use a QDRO to divide income when each of the two parties reach retirement. This arrangement typically divides a retirement plan and puts part of it in each person’s name. This means some people may end up with retirement plans for companies they have never worked for!
Social security is another form of retirement financing, however it is quite different from a QDRO arrangement. The Federal law states that social security benefits are unable to be divided among two parties. In some cases, one spouse may have a social security entitlement that is based on their former spouse's employment. If that is the case, that spouse may accept that benefit if it is greater than that which they would receive based on their own individual work history.
Additionally, in certain cases one party can order the other’s spousal support to be paid from that individual's social security. Regulations vary by region and circumstance, so you should seek legal advice to navigate this situation.
Finally, it's important to note that retirement benefits and divorce vary from state to state. For example, Washington State considers retirement benefits to be community property. This means they are subject to division in divorces in this state. Each state has its own specific regulations, so understanding those in your state is a great place to begin this process.