Do We Split Our Retirement Benefits During a Divorce?

When it comes to property division, divorce settlements are generally more complex than who gets the house, car, and savings.

Working people gather assets towards their retirement in the shape of several different types of plans and funds. These also need to be taken into account.

What happens to retirement benefits during a divorce? Are they split equally like with other property and investments?

New Mexico property division laws

In New Mexico, every asset or debt acquired during a marriage must be divided when a couple is divorced.

This includes retirement accounts but when couples consider their joint and individual assets at the time of separation, these can be overlooked. This is a big mistake as retirement benefits are often a significant joint asset.

In some cases, they can be the subject of the intense dispute and lead to a long legal battle.

It is essential to separate any benefits that were acquired during the marriage from those acquired before it started.

Any retirement benefits that are generated during the marriage are considered the property of both spouses (“community property”) and must therefore be split equally.

Retirement benefits acquired before or after the marriage are considered individual or “separate” property. 

Inherited funds are not generally considered marital property either and are, therefore, not subject to division. 

Who decides how benefits are divided?

Divorcing spouses frequently dispute the terms of the division of retirement benefits, as it is often one of the major community property assets. 

As such, a share of retirement plan benefits can amount to a significant sum of money.

If a couple cannot agree on the division of retirement benefits, the court can help set the terms of the division.

However, not even a judge can dictate the presentation or form of the order requesting division of benefits. 

The responsibility to approve the court order for the purposes of splitting the benefits falls on the plan administrator.

What is a QDRO? 

A QDRO is a Qualified Domestic Relations Order. It must be submitted to the plan in order to accurately divide retirement benefits during a divorce.

This document must be filed with the court, endorsed and then forwarded to the plan administrator. 

The order generally needs to follow strict and specific guidelines set out by the plan if the administrator is to approve and act upon it. 

Even if spouses agree on the terms of division and a certified QDRO is submitted, it may be rejected because it does not meet the plan administrator’s particular requirements. The order may need to be modified, refiled, signed by the judge, and submitted several times to be approved.

This can lead to potentially frustrating delays, especially if the plan administrator requires each new order to be signed by a judge before they review it.

Note that it is the plan administrator, not the judge, who decides if the QDRO is accepted. Once approved, the retirement benefits can be divided according to the order.

Which retirement accounts need to be considered in property division? 

During a divorce, couples may need to consider several different types of retirement accounts. The three main types of retirement plans are the following:

  • An Individual Retirement Account (IRA)

An IRA is a tax-advantaged account used to set aside funds for retirement savings. Several types of IRAs exist, depending on employment status.

The total in the account at the time of divorce is divided between the two spouses, with any contributions before the marriage withheld from the “community property” arrangement and retained by the individual who contributed them.

If the IRA was started during your marriage, the division is simple. The entire value of the account is considered marital property despite only being held in one person’s name by law.

To arrange the division of benefits, a letter of instruction must be sent to the account administrator, who will then facilitate the division.

  • A 401K account

A 401K account is divided in a similar way to the IRA. However, the respective lawyers for you and your spouse are required to facilitate the division.

The percentage to which each party in a divorce is entitled depends on contributions made during the marriage (“community property”) and contributions made before the marriage (“separate” property).

The community property is split equally unless a different negotiated agreement exists.

Once finalized, a QDRO will be prepared by your lawyers in consultation with the employer who provided the 401K. 

  • Pension fund

With a pension fund, the division again depends on the number of years you were married while working and contributing to it.

If you contributed to the fund before marriage, this would not be subject to division but all contributions during the period of your marriage would generally be split equally.

However, complications can exist with pension funds and it is best to seek the assistance of a lawyer in considering the division.

Once everything is agreed, your lawyer will prepare the QDRO and it can be sent to the company managing the fund.

Get help with dividing retirement benefits 

Making clear and rational decisions regarding property division while going through a divorce can be extremely challenging.

However, the decisions you make now can affect your future finances. 

Talking your situation through with a divorce lawyer at Legal Solutions of New Mexico can help you reach an agreement on and facilitate the division of your retirement benefits.

Start with an initial consultation. Call 505-445-4444 or email us.