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Retirement funds require precision in divorce

Retirement accounts are often the single largest asset held by New York couples who decide to divorce, and this can mean that dividing them is a complex and emotionally tense issue. Divorce lawyers agree; 62 percent of those who replied to a 2016 survey said that retirement accounts were the most contentious issue their clients faced. As these funds are key to the financial security of both partners, dealing with them appropriately in divorce is critically important.

The complications of handling retirement funds in divorce are not limited to securing an equitable property division settlement; on the contrary, there are many financial and legal regulations that govern the use of different types of retirement funds. These regulations must be followed in order to protect these important assets as improper distribution can be very costly to both parties in terms of taxes, penalties and fees.

A qualified domestic relations order or QDRO must be obtained from the divorce court to carry out the agreed-upon distribution of a retirement fund. While the QDRO should reflect the divorce settlement, this type of order is not automatically issued along with the divorce decree and must be requested. A QDRO is necessary whether the fund is a traditional defined benefit pension or a 401(k) account, and each retirement fund that needs to be distributed also requires a separate QDRO. The order should specify whether the distribution will be made to cash or rolled over into another retirement account.

The divorce and family law attorney who represented one spouse during the divorce may also be able to draft the QDRO and present it to the court for approval. The attorney might work with the administrators of the retirement plan to ensure that the funds are distributed accurately and in line with the agreement reached as part of the property division settlement.