A retirement plan, like a 401(k) or a pension plan, is a major asset. When couples get divorced, they often have to decide how to divide it. This is especially true with a gray divorce, which typically means the couple is over 50, because they are getting closer to retirement age. They want to protect the assets they expect to use to retire.
If you’re in this position, you can divide the retirement account using a qualified domestic relations order (QDRO). During the divorce, the court determines how to split up the plan and issues a court order that must be followed. Once your ex retires, if they were the account holder, they have to share those funds with you.
But does that mean that you are going to get half of the retirement plan? It is usually not that simple.
Earnings during the marriage
The important thing to remember is that you only split up the portion of the account earned during the marriage. The portion that will be earned after the divorce – or that was earned before the marriage – doesn’t qualify.
For example, maybe you met your spouse when they already had $100,000 in their 401(k). During your marriage, they have earned another $300,000. The QDRO may specify that your ex can keep that initial $100,000. They then divide the $300,000 with you, meaning that you wind up with $150,000 from the 401(k). But your ex will have more – $250,000 in this hypothetical example – because they get to keep the full value of the account from prior to the marriage.
It’s important to consider complicated assets like this. Make sure you know exactly what legal steps to take.