People in Pennsylvania who are thinking about ending their marriages know that property will be divided between the spouses. What they may not already know is that a 401(k) is also eligible to be divided. It is possible for a court to accept the designation and documentation of a transfer of retirement funds to an ex-spouse as long as they are in line with legal requirements.
The first step to splitting the funds of a retirement account in a divorce is to select the spouse as an alternate payee for the account. For the court to approve this selection, it must follow the requirements of ERISA, which is the 1974 Employee Retirement Income Security Act. It must also meet the standards of the IRC (Internal Revenue Code).
Given that the court agrees to accept an employee’s spouse as an alternate payee for the account, another step must be taken to ensure that the spouse receives the retirement benefits. A QDRO, or qualified domestic relations order, must be submitted to the court. This order clearly defines who will be the recipient of the retirement savings and who is the owner of the account. This document must be accepted by the court so that the funds can be transferred to the IRA, or individual retirement account, of the payee spouse without being taxed.
A family law attorney might be able to assist a prospective client with the steps required to split retirement assets. Besides answering questions about the technical aspects of property division, a lawyer may also help by drafting the documents the court requires for its review and by making sure that the documents comply with legal standards before submitting them.