EP 19: Splitting Retirement Plans in Divorce – What You Need to Know

Welcome to the nineteenth episode of Divorce and Your Money Podcast. Your host, Shawn Leamon, MBA and a Certified Divorce Financial Analyst, talks about the complex subject of retirement plans.

Retirement plans come in different forms, the most common of which is an IRA. If you or your spouse has worked at some point during your life, it is very likely that you have an IRA of some kind. It works by deducting some specific amount from your pay and saves it. In a simple IRA, you can contribute money until the age of 70, after which time you will have to withdraw a certain amount each year. A Roth IRA is a retirement plan under U.S. law that is generally not taxed, provided certain conditions are met. There is no mandatory withdrawal age, and it is easy on restrictions. In a Sep IRA, the company contributes to the account.

Splitting IRAs in a divorce is easy, only requiring an order from the court that states how the assets are to be split, and usually no tax consequences are involved.

Pension plans and defined contribution plans are more complex issues. A pension plan is characterized by a company promising specific benefits after an employee’s retirement. These are also called defined benefit plans because the benefits you receive are usually guaranteed. Defined Contribution Plans are different, as they involve defining a specific amount held by the holder. The same method applies to both for dividing them. This process is called a QDRO and has specific instructions on how to split the plans. You will need to consider many factors when you think about splitting these plans.

A QDRO has two sets of information. The basic set includes your basic information and evaluation date. QDROs become complicated because of the information they can’t include, for example, giving certain benefits to a spouse that are not already allocated in the plan. As these plans have strict legal complications and rules, they need to be followed properly. They also require a specialist to prepare them, given the legal, technical, and investment complications involved. You can find a specialist by searching QDRO and the name of your state, and you should do this as soon as possible.

Key Learning Points:

  • Retirement plans are complex.
  • An IRA is the most common form of retirement plan.
  • Splitting IRAs in a divorce is easy, only requiring an order from a judge.
  • IRAs usually do not have any tax consequences.
  • Pension Plans and Defined Contribution Plans are complicated.
  • These plans have the same method for dividing them, which is called a QDRO. A specialist is needed to prepare it because of its complexity.

Thank you for listening to the Divorce and Your Money Podcast. We hope the show helps you through one of the most difficult periods of your life. Shawn Leamon is also the author of Divorce and Your Money: The No-Nonsense Guide. One-on-one divorce coaching services are available at www.divorceandyourmoney.com.

If you enjoyed the show, please take a moment to leave a review on iTunes, as it will help other people discover this helpful advice.

Shawn Leamon, MBA, CDFA

Dallas, Texas

Shawn C. H. Leamon is Managing Partner of LaGrande Global, a firm that helps successful families manage large financial transitions like divorce, inheritance and selling a business.

He earned his Bachelor of Arts from Dartmouth College, double majoring in Economics and Philosophy, and his Masters in Business Administration at Spain’s IE Business School.

Before founding LaGrande Global, Shawn helped manage $1.1 billion in client assets at Bernstein Global Wealth Management. He also worked as a credit research analyst at J.P. Morgan. He is a Certified Divorce Financial Analyst, and he has been an advisor to numerous high-stakes divorce cases.

Shawn is the author of two well-received finance books: Managing Private Wealth: Principles, and Divorce and Your Money: The No-Nonsense Guide, both published in 2016.

In his spare time, Shawn is an ultra-endurance athlete and has competed in events as long as 24 hours. He is an Eagle Scout and a member of the Alumni Board of Greenhill School.