Silver Divorce: Understanding Rules To Splitting Retirement And Pension Accounts
Aging Missourians who are contemplating divorce often have different concerns than younger couples. While young families with minor children spend much of their time and energy working out family planning arrangements, empty nesters don’t have that challenge. On the other hand, retirement issues are often at the forefront of concerns for those considering divorce who are in their silver years. It is worth becoming acquainted with the guidelines associated with the retirement and pension accounts you and/or your spouse hold. There are different kinds of retirement/pension plans, each with separate rules on how they are to be divided in a divorce.
A Qualified Domestic Relations Order
A Qualified Domestic Relations Order (QDRO)) is a document that will dictate how Employee Retirement Income Security Act (ERISA) funds are distributed in divorce. They relate only to private sector pensions that are governed by federal law. A QDRO is a legal document that is drafted by an attorney to address the specifics of the retirement plan or pension belonging to an individual and how those monies are to be distributed in a divorce. These plans are eligible for favorable taxation even in divorce due to section 414(p)(1)(A) of the Internal Revenue Service (IRS) code. Once the paperwork is signed by a judge, a plan administrator will handle the distributions. Options include:
- Funds can go right into an ex-spouse’s IRA penalty-free (which saves 10%);
- A lump sum could be distributed to the former spouse (regular tax rates applicable);
- A lump sum of part of the amount could be dispersed, with the rest going into an IRA within 60 days.
Other Penalty-Free Distributions
Plenty of other retirement assets—IRA’s, 401k’s SEP’s Keoghs—to name a few—will let you take disbursements prior to age 59 ½ without penalties; but there is an inflexible rule that applies: the amount disbursed must be fixed in periodic payments for five years or until the owner of the account reaches age 59 1/2, whichever is longer. Any deviation from the rules means you’re stuck with the 10 percent penalty and interest charges.
Federal Retirement Plans
Federal Retirement Plans (FERS) are offered to members of the Armed Forces and to the majority of civilian workers in the federal government. In a divorce, these monies are generally divided using a Court Order Acceptable for Processing document. While a former spouse is not automatically granted a portion of a military member’s retirement by federal law, Missouri state law allows for such a distribution as part of the marital assets. Like with a QDRO, the plan administrator will distribute the funds after all documents are in order.
State Retirement Plans
There are three key retirement systems to of which public employees might take part:
- Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS): Because employees are allowed to build these benefits in lieu of Social Security credits, they are not considered marital property and cannot be divided in a divorce.
- Local Government Employees Retirement System (Lagers): While it is possible to divide these benefits, the employee is responsible for handling disbursements to a former spouse, rather than a plan administrator, due to state laws restricting the garnishment or execution of the funds.
- Missouri State Employees Retirement System (MOSERS): An administrator can distribute these funds after a Division of Benefits Order is completed.
Making the Best Choices
While it’s true that retirement plans and pensions are always on the table in a Missouri divorce, considerations about how to divide these, and other assets, can be complicated. What are the best options for you? That is a discussion to be had with your knowledgeable and trustworthy Springfield retirement considerations attorney at Courtney & Mills. Explore the possibilities by setting up a confidential consultation in our office today.