When you and your spouse divorce in New York, one or both of you may have one or more retirement account(s) that represent a major portion of your marital assets. For many couples, the value of these accounts’ long-term benefits represents the single largest marital asset.
Dividing these accounts fairly and equitably during your divorce is a highly challenging and complicated undertaking. In all likelihood, each retirement plan has its own definitions, rules and procedures. If your property settlement agreement runs afoul of any of these, one or both of you could face significant negative tax consequences.
QDROs
To ensure that everything works properly with regard to dividing these retirement accounts between you and your spouse, you need a Qualified Domestic Relations Order for each retirement account that your property settlement divides. QDROs are highly complex legal documents that your attorney drafts for you that precisely comply with each plan’s provisions. The legal language of each QDRO must mesh perfectly with the language of the retirement plan to which it pertains.
Understandably, drafting a QDRO can become extraordinarily complicated very quickly. Even when the plan administrator provides your attorney with its model QDRO form, often a CPA is the only qualified person who can understand the complex financial considerations and calculations therein.
QDRO issues
Some of the issues your QDROs may need to address include the following:
- What the retirement benefits apply to, such as child support, spousal maintenance, marital property rights, etc.
- Whether the retirement plan is a defined benefit plan or a defined contribution plan
- The age at which you or your ex-spouse can begin receiving benefits
- Whether or not you or your ex-spouse can continue to receive benefits should you remarry after your divorce
- The tax consequences to both you and your spouse of this retirement account division
Given the enormous complexity of both a QDRO and the underlying retirement plan it represents, your best strategy may be to add a CPA to your legal team when you divorce.