Dividing Retirement Assets in a Divorce

Tax ReportDivorceRetirement assets whether in an employer-sponsored retirement plan or individual retirement account (IRA) are often among a couple's largest assets. That's why separating couples should carefully follow the rules for the transfer of these assets.

Qualified Plans

To divide assets in a qualified employersponsored plan, the couple should obtain a qualified domestic relations order (QDRO). Generally, a QDRO is a judgment, decree, or court order issued under a state's domestic relations law that:

  • Recognizes someone other than the plan participant as having a right to receive benefits from a qualified retiremnent plan (such as a 401(k), profit sharing, or defined benefit plan),
  • Relates to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent ol the participant, and
  • Specifies certain infornialion, including the amount or part of the participant's benefits to he paid to the participant's spouse, former spouse, child, or other dependent.

For tax purposes, benefits paid under a QDRO to the plan participant's spouse or former spouse generally have to be included in the spouse's or former spouse's income. Benefits paid to the plan participant's chilil or other dependent are treated as though they were paid to the participant. The 10% early withdrawal penalty does not apply to payments made from a qualified retirement plan to an alternate payee under a QDRO.


The transfer of an IRA to a spouse or former spouse pursuant to a divorce instrument is not a taxable transfer. Couples typically transfer IRA assets with a direct trustee-to-trustee transfer or by changing the name on the IRA. After the transfer, the IRA is treated as the spouse's.

2016 Mar Pg 04