Dividing Retirement Benefits

Because Washington is a community property state, any asset acquired during the marriage is presumed to belong to both spouses, regardless of whose name it’s in. That includes wages and employment benefits as well as houses, stocks, and cars.

Transferring all or part of tax-deferred retirement benefits requires special handling. Dividing a 401K or equivalent account (similar to a retirement savings account, with contributions taken pre-tax from the employee’s wages – sometimes with additions from the employer) or a pension benefit (the right to receive $X per month upon retiring after a certain age) requires a separate court order called a Qualified Domestic Relations Order (“QDRO”).

The QDRO has to clearly state either the dollar amount or the percentage of the retirement benefit which will go to the employee’s spouse. Many employers have sample QDROs modeled for their specific retirement plans. Since the QDRO has to be approved (“qualified”) by the retirement plan’s administrator, even if it has been signed by the judge, it’s a good idea to use the administrator’s sample QDRO form if they have one.

A QDRO is not needed to divide an Individual Retirement Account, so long as it is rolled over directly into another IRA. QDROs also don’t apply to federal or state retirement benefits, which have their own rules.

Dividing a 401K-type account is easy: it’s a specific sum of money, divided as agreed. For example, the non-wage earner spouse may receive $55,000 out of an account with a $100,000 balance. Of course, the money usually can’t be spent before retirement age without paying an early withdrawal penalty.

Dividing the right to receive a pension’s fluctuating sum payable in the future is more difficult, but the parties are not limited to a percentage division. The spouse desiring to keep the pension benefit may buy out the other’s interest, by determining the present value of the future benefit. An expert may be hired to calculate the present value in a hotly-contested trial, or the parties may accept a mathematical formula which calculates a rough sum using only the functions in the Windows built-in calculator.