Matrimonial and Family Law Blog

Thursday, December 12, 2019

Retirement Assets and Qualified Domestic Relations Order in New York Divorces

Dividing property can be a contested issue in a divorce action. Each spouse wants to ensure that he or she receives a fair share of the marital property, including retirement accounts. However, dividing retirement accounts can be challenging. You need a New York family law lawyer to review the accounts and prepare a Qualified Domestic Relations Order (QDRO).

What is a Qualified Domestic Relations Order?

Retirement accounts are subject to strict laws regarding the withdrawal of funds from the account before retirement age. Significant penalties and taxes may apply if you attempt to divide a retirement account without a QDRO.

A QDRO is a court order that allows retirement accounts to be divided according to a divorce decree. It directs the plan administrator to withdraw a portion of the account and transfer that portion of the account to the non-owner spouse. The order creates a legal right of ownership for the non-owner spouse to a portion of the retirement account.

By using a QDRO, the parties can avoid the withdrawal penalties and tax liabilities normally associated with an early withdrawal from a retirement account. However, the non-owner spouse must roll the funds into a qualified retirement account to avoid paying taxes on the funds.

Retirement Accounts and Marital Property

Retirement accounts owned before the parties were married typically fall into the category of nonmarital property. However, any funds accumulated in the account during the marriage are marital property, unless the parties agree otherwise in a prenuptial or postnuptial agreement. Because retirement funds represent financial security in the future, the correct division of these marital assets is important.

Retirement accounts that can be subject to property division include:

  • 401(k) Accounts
  • Profit-Sharing Plans
  • Individual Retirement Accounts (IRAs)
  • 403(b) Accounts
  • Pension Plans

Retirement accounts are divided according to a formula established as part of the court case of Majauskas v. Majauskas.

The Majauskas Formula for Retirement Accounts

A judge is not required by law to use the formula when deciding how much a non-owner spouse should receive from a retirement account. However, many judges follow the formula unless there is a compelling reason to deviate from the formula. The interest of the non-owner spouse is calculated by multiplying a fraction by a certain percent. The fraction is based on the number of months the owner spouse contributed funds to the retirement account before and after the marriage.

Because New York is an equitable distribution state, the percent used in the formula is usually 50 percent. However, equitable does not mean equal. A judge may determine that a different percent is equitable or “fair” based on all factors in the case. The type of retirement account, defined benefit plan (pension plan) or defined contribution plan (401k plan), also impacts the exact formula used to divide the retirement account.

Spouses may agree on a settlement for the division of retirement accounts instead of allowing the court to divide the retirement asset. A settlement can then be incorporated into a QDRO for submission to the plan administrator.

Contact a New York Divorce Attorney for Help

Let a New York divorce attorney help you protect retirement funds during your divorce. Without careful consideration and analysis of all factors, you could receive less than you deserve in the property division. Contact Gassman Baiamonte Gruner, P.C. to speak with a New York divorce lawyer today.

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