Employee benefits can be treated as marital property when determining the amount of monetary award and the assets and income available for alimony and child support.
The value of employee benefits and how they are treated depend on a variety of factors, including the value of the benefit at a particular point in time, the type of benefit and its terms and conditions, any applicable laws, and tax consequences of that benefit.
When it comes to divorce, there are two types of retirement benefits that you should be aware of: Qualified Domestic Relations Orders (QDROs) and 401(k)s.
Qualified Domestic Relations Orders
A Qualified Domestic Relations Order, or QDRO, assigns some or all of a pension participant’s benefits to his or her dependent – a spouse, former spouse, or child – in order to cover child support, alimony, or marital property obligations.
If a dependent is a minor or is legally incompetent, the QDRO can require payment to a third-party, such as a guardian or trustee, and it may assign all or part of the retirement benefits whether or not the benefits have vested or accrued.
QDRO rules only apply to tax-qualified or nonqualified retirement plans. Therefore, any plans not subject to ERISA, such as individual retirement accounts or federal, state or local government plans, will not have QDRO rules applied to them.
Benefits may be paid earlier if the participant becomes eligible (e.g., he or she continues working even though he or she is qualified to retire). If a participant dies before retirement, all payment rights under the QDRO might end, except survivor benefits.
A 401(k) is a defined contribution plan that provides individual accounts for each participant.