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Dividing a retirement plan during divorce

For many estranged Missouri couples, a divorce will involve dividing marital property. If such an asset is a retirement account, this process can be somewhat complicated.

A qualified domestic relations order is needed for plans that are covered by the Employee Retirement Income Security Act and are IRS tax-qualified. With a QDRO, a person can take a portion of the funds and put them into another account, usually an IRA. A QDRO must be approved by the plan administrator, and some plans include a boilerplate QDRO that can be used as a model. However, some situations may be more complicated including those in which a person is supposed to get a large sum from a spouse's retirement account. It is important that all QDROs are prepared accurately. A QDRO is not needed for SEP or IRA assets or for government or military pensions.

Another potential complication is figuring out the payout. If the retirement account was set up after the marriage, then the entire thing may be considered shared marital property unless the couple has a prenuptial agreement. However, if it was created before the marriage, only the portion contributed since the marriage may be considered shared marital property. Furthermore, in a defined contribution plan such as a 401(k), there are certain terms that dictate when and how a payment will be made.

Sometimes, in order to simplify the process of dividing property, people will take full assets of equal value instead of splitting assets. However, this can be complex as well. For example, in the case of a retirement account, it would still be necessary to work out how much a person would receive instead of just looking at half the account's value. Similarly, other assets might need to be considered in light of any depreciation, taxes or other costs that reduce their value.

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