Generally, Federal and Massachusetts law prohibits money being taken out of retirement plans before an individual retires. One exception to the general rule, however, is the ability to transfer retirement assets from one party to another as a result of divorce. The tool which effectuates these transfers is called a Qualified Domestic Relations Order (“QDRO”). A QDRO tells a third party (the retirement plan administration) how to carry out the division.
There are a wide variety of ways in which people save money for retirement, among them, defined benefit pensions, 401(k)s (for employees in private employment), 403(b)s (for employees of non-profit organizations) KEOGH and SEP plans for the self employed and IRAs for those who establish their own plans. Retirement assets are treated as marital property in Massachusetts and therefore subject to division as part of the marital estate upon divorce.
Typically, parties will enter into a Separation Agreement which spells out the terms of the division and then hire an expert to prepare the QDRO. Careful attention must be given in drafting a QDRO, taking into consideration various issues, including, but not limited to, the nature of the retirement plan, whether a QDRO is necessary to divide the retirement assets, when the retirement benefit can be divided and whether the division will occur as a lump sum payment or be received as a monthly benefit.
Beyond the division of retirement assets, parties must also be reminded to change the beneficiary designations of those retirement assets which remain in their name or are transferred to them upon divorce.
For further information on QDROs and divorce, in general, please contact Patricia S. Fernandez & Associates to learn more about the process. Pat and her team can help you answer your questions.