Retirement 401(k) and pension accounts are some of the most critical assets acquired by married couples. In a divorce, the parties may need to divide these assets, even if they are only in the name of one spouse. While retirement accounts are generally considered marital property, issues can sometimes develop about how to divide them.
Virginia views 401(k) and other retirement accounts as marital property. There are specific rules defined in Virginia law about how to divide these accounts in a divorce.
Virginia courts consider the following when dividing 401(k) and other retirement plans:
Duration of The Marriage
If the marriage lasted 20 years, and the employee spouse had a retirement account for 25 years, then 20 years’ worth of contributions may be divided as marital property. Account contributions preceding the marriage are considered as separate property and protected from division.
The 50% Rule
Virginia law maintains that the non-employed spouse may receive no more than 50% of the retirement account.
The spouse will not automatically get half of the 401(k). Since Virginia is an equitable distribution state, the court will consider factors including each spouse’s earning capability, savings, debts, and the couple’s standard of living before dividing the retirement accounts.
Defined benefit retirement plans, or pensions, are considered marital property and subject to equitable distribution.
The two ways for dividing a pension during a Virginia divorce are:
Dividing the Pension’s Present Value
An actuary service will calculate the pension’s current value, and the parties may choose to include this value to be a part of the overall asset division.
Dividing the Pension’s Shares at the Time of Retirement
Divorcing parties have the option to divide the pension’s shares on their own but defer payment at the time when the spouse with the pension retires. Upon agreement, both spouses may submit a Qualified Domestic Relations Order to the court describing the way in which the pension’s shares will be divided at retirement.
What is a Qualified Domestic Relations Order?
A Qualified Domestic Relations Order, or QDRO, is a court order that gives a spouse the right to a share of the retirement benefits received by their spouse during the marriage. They may also be entitled to other financial assets like survivor benefits, which will be covered in the court order and the QDRO.
A QDRO can also be used to avoid payment of any taxes or penalties associated with a retirement account.
A domestic relations order is not considered “qualified” without the approval of the company that handles that retirement plan, referred to in the QDRO as the plan administrator. A judge’s signature on a domestic relations order is not enough. It must then be submitted to and approved by the plan administrator before dividing the funds.
If drafted improperly, the plan’s administrator will reject the domestic relations order, and the pension account will not be divided. Therefore, crucial to fill out and verify your QDRO to ensure your rights are protected.
Contact Holcomb Law, P.C. Today
Dividing retirement assets can significantly affect your financial future. Consulting a highly qualified Virginia divorce lawyer regarding your 401(k) and pension accounts is essential.
Call Holcomb Law today at (757) 656-1000 to schedule your “No Hassle Legal Strategy Meeting” to ensure a more secure financial future, or connect with us online.