Do I Need a QDRO to Divide Retirement Assets in a Michigan Divorce?

 Posted on August 12, 2021 in Divorce

When it comes to property division in a divorce, Michigan is an “equitable distribution” state, meaning that spouses must divide all marital property fairly in accordance with the specific details of their situation. However, people are often surprised to learn just how many assets may qualify as marital property. Marital assets include not only properties that spouses own jointly, like the home they live in but also assets held in one spouse’s name that were acquired during the marriage. This means that much of your retirement savings could be subject to division if contributions were made to your accounts while you were married.

While dividing a retirement account is often a necessity during the divorce process, doing so is not simple. Without taking the proper steps to divide your account, you could find that the assets steeply decline in value due to income taxes and early withdrawal penalties. For this reason, it is important to understand whether you need to obtain a Qualified Domestic Relations Order, or QDRO, that allows you to divide your account while protecting the savings.

Do You Need to Divide Your Retirement Account?

The first question you should ask yourself to determine whether a QDRO is necessary is: Do I actually need to divide my retirement account? If you have any accounts that contain only premarital contributions, those accounts likely remain your sole property. You may also be able to keep a retirement account intact if you have a prenuptial or postnuptial agreement that specifies that the account will be yours in the event of a divorce.

If you and your spouse each have your own personal retirement accounts, you may be able to work out a property division agreement that allows each of you to keep your own. If they differ significantly in value, one spouse may need to compensate the other with similarly valuable marital assets.

What Type of Retirement Account Do You Have?

If you determine that it is necessary to divide a retirement account, the need for a QDRO depends on the type of retirement account in which your savings are held. If you have an IRA, it is a fairly straightforward process to transfer or rollover assets from one spouse’s account to the other’s. A QDRO is not necessary in this case, but it is still important to notify the account manager that you are making a transfer incident to divorce.

A QDRO becomes necessary when you are dividing an employer-sponsored retirement account, like a 401(k) or pension. In the case of a 401(k), a QDRO allows for a one-time transfer of retirement assets between spouses without incurring immediate income taxes or triggering early withdrawal penalties. In the case of a pension, a QDRO details how the assets should be divided between you and your former spouse once distributions begin.

Contact a Novi, MI Property Division Lawyer

The property division process is more complicated for some assets than others. At Elkouri Heath, PLC, we can help you understand how your divorce will affect your retirement savings, negotiate on your behalf to protect your interests, and help you obtain a QDRO if necessary. Contact our office today at 248-344-9700 to schedule a free consultation with one of our experienced Oakland County divorce attorneys.

Sources:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-qdro-qualified-domestic-relations-order

https://www.michigan.gov/documents/ors/R0912X_DRO_Instructions_365736_7.pdf