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Some basics about how divorce can affect a retirement plan

On Behalf of | Feb 17, 2016 | Uncategorized |

Saving for retirement can be a good idea, and many people in Boulder County use various ways to save money for retirement and realize tax benefits. These ways include pension plans, 401(k) plans and other kinds of retirement plans. Usually creditors cannot touch these plans. But what if the owner of the plan is a spouse going through a dissolution of marriage? Can the other spouse or children receive some of these funds?

The answer is yes. There is a limited exception to the creditor protection feature of retirement plans that applies when family support is deemed necessary by a court. In this case, the court may issue a Qualified Domestic Relations Order, or QDRO. QDROs can be issued by state courts such as Colorado’s. The court can designate another person – such as a spouse, ex-spouse, child or other dependent as an alternate payee of the plan through a QDRO. The retirement plan must honor the QDRO.

When a retirement plan administrator receives a court order purporting to be a QDRO, it will first determine whether the order is a properly drawn up QDRO. In order to be honored by the plan administrator, the order must relate to property division rights, alimony or child support. The QDRO must show the name and last-known address of the plan owner and the names and addresses of all alternate payees. It must also specifically provide the name of the plan and provide specifics regarding the amount or percentage of assets to be paid to the alternate payees. The alternate payees may not be assigned an actuarially increased benefit.

Dealing with QDROs and general divorce property issues can be complex. Knowledgeable legal minds can be of invaluable help in untangling the mess.