In Utah divorce cases, 401(k) plans, pension plans, and other retirement plans accumulated during the marriage are part of the marital estate and subject to equitable division. The general rule is that any amounts in retirement accounts that have accumulated during the marriage are split evenly. Amounts owned prior to or subsequent to the marriage are considered to be separate property. The theory is that both parties are equal partners for the duration of the marriage, both supporting each other and working together to accumulate assets, including retirement funds.
In order for a 401(k) or similar tax-advantaged retirement plan to be divided in a divorce, a Qualified Domestic Relations Order (QDRO) must be entered by the Court. This is a separate order from the Decree of Divorce. The person whose name the retirement plan is under is referred to as the “plan participant.” The QDRO should conform to the terms of the Divorce Decree with respect to the amount of benefits awarded to the non-participant spouse, who is also known as the “alternate payee.” The amount awarded to the alternate payee may be a specific dollar amount (i.e., $20,000) or a percentage of the plan’s funds that were accumulated during a specified time period (i.e., 50% of the amount accumulated during the marriage).
All QDROs must contain certain items, such as the name of the plan and the names and addresses of the plan participant and alternate payee. Other provisions may vary depending on the plan requirements, the benefits awarded to the alternate payee, and the intent of the parties. However, a QDRO cannot change the basic terms of the plan.
The plan administrator will determine whether or not the QDRO “qualifies” after it has been signed by the divorce Judge. That is, the plan administrator will check to make sure that the QDRO conforms to all of the guidelines set forth in federal regulations such as ERISA (the Employee Retirement Income Security Act). The process of “qualifying” a QDRO is deemed by the federal government to be outside the province of the state divorce courts. Once the QDRO is determined to “qualify”, the plan administrator will split the account, providing benefits to the alternate payee.
So, for example, a QDRO may award the alternate payee the sum of $20,000. The QDRO may specify whether or not this amount is subject to earnings, interest, and losses accumulated in the account. If the specified dollar amount is subject to earnings, interest and losses, and the account is invested in stocks or mutual funds that go up with the market, the alternate payee will receive earnings on the $20,000 amount. If, conversely, the account goes down with the market, the alternate payee will bear the losses on the $20,000 up until the time the account is split.
As another example, the QDRO may specify that the alternate payee is awarded a percentage of the plan’s assets, typically 50% of the account as of certain specified dates. These dates will usually be the date of marriage and the date of divorce. Again, this percentage amount may be subject to earnings, interest and losses up to the time the account is split. QDROs may be used for purposes of child or spousal support. However, typically they are used as part of the property settlement in divorce cases.
There are two basic types of retirement accounts; namely define benefits accounts (such as pensions), and defined contributions accounts (such as 401(k)s). Both types of accounts may be divided by means of a QDRO.
This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.