In recent years, the divorce rate among couples over 50 years old has increased. According to a study by the Institute for Population Research cited in a recent Forbes story, in 2009, the participants in one in four divorces were 50 years old or above. Many women fitting this age range, at this point in time, have put their own careers aside to raise children while their husbands worked.
And these women need protection during a divorce to ensure they have adequate funds to retire.
401ks Can Be Divided to Fund Both Spouses’ Retirements
When one spouse contributes to a 401k while the other stays home to care for the family, both parties have a right to the retirement funds after a divorce.
The same is true of IRA and Social Security funds. The main exception is retirement funds owned by one spouse before the marriage; however, interest may be considered the property of both spouses, depending on state laws. Federal laws govern the division of 401k and 403b plans; state laws usually govern the division of IRAs.
A divorce court will officially determine appropriate property division.
A Qualified Domestic Relations Order, or QDRO, is a tool that can help enforce the court’s order of division of retirement accounts. This order informs the plan administrator of what is owed to each party. A QDRO should be obtained before the divorce is finalized to protect the party who did not directly contribute to the retirement plan.
Note: A properly-drafted QDRO is important because the plan administrator will generally follow the funding organization’s own distribution rules. That means, as is often the case in the division of pension benefits, the spouse who is owed money from the plan may not receive it until he or she reaches the age of retirement.
Additionally, if the spouse who directly contributed to the plan dies before the QDRO is issued but after the divorce is finalized, the plan may not be obligated to make payments to the survivor. If the survivor was no longer a beneficiary of the plan after the divorce, with no QDRO in place the administrator will not be legally obligated to make payments to her after the contributor’s death.
All of this means that spouses whose partners have retirement funds need legal representation during a divorce. In fact, most people, especially those 50 and older who did not directly contribute to joint retirement accounts, will likely need help ensuring they receive what is owed to them during and after a divorce.
Because retirement account division can be complicated, Maryland residents should seek legal advice during the divorce process.