DIY Divorce Pitfall: Retirement Accounts

DIY Divorce Pitfall: Retirement AccountsIf you prepare properly, retirement can be blissful. It can be a well-deserved reward after a lifetime of hard work and dedication. Retirement can simplify your life and allow you to do many of the things you have always wanted to do. For many people, financial stability in retirement is provided by a mix of social security payments and pensions or other retirement and investment accounts. For those who are divorced, retirement funds can be a touchy subject, especially in situations in which important aspects of dividing those accounts were overlooked. In do-it-yourself Florida divorces, overlooking important details related to retirement accounts is not only possible, but it unfortunately occurs all too often. A recent article from U.S. News & World Report provides some insight as to why.

Qualified Domestic Relations Orders

Qualified domestic relations orders (“QDROs”) are important parts of the divorce process, especially when it comes to retirement accounts. QDROs are signed by a judge and compel a retirement account to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of the participant in the account subject to the order.

Simply writing a divorce settlement on your own or using low-cost do-it-yourself divorce kits can often overlook the need to have a QDRO in place when it comes to dividing retirement accounts. That mistake can be costly. The article gives an example of just how costly these mistakes can be. In the example, the higher earning spouse withdraws $250,000 from a 401(k) as part of the divorce settlement but does so without a valid QDRO in place. As a result, the 401(k) participant was hit with a 39.6% tax that amounted to $85,000 as well as an early distribution penalty of 10%, or $25,000. In the end, division without a QDRO in place ended up costing the 401(k) participant an additional $110,000 in taxes and fees.

QDRO analysts interviewed for the article suggest individuals should not finalize a divorce unless there is a QDRO in place and ready to be signed at the same time as the rest of your divorce paperwork. Otherwise, the resulting issues can be messy. Too many times in do-it-yourself divorces, by the time you realize you need a QDRO, it can be too late.


As anyone that has a retirement account or other investment account knows, dealing with the funds that you put into and take out of them along with various other factors related to the account can be time-consuming and confusing. This is especially true when you are trying to divide them legally.

One often overlooked issue when it comes to dividing retirement accounts is that many of these accounts are subject to required minimum distributions. Failure to elect such distributions can come with a significant financial penalty either for the participating spouse or for the spouse sharing in the account.

Even with a QDRO in place, there could still be significant tax consequences related to dividing retirement plans both presently and down the road. It is important to have an understanding of how these issues might impact each spouse in order for both of them to make the most informed decisions about how to divide a retirement asset.

When it comes to pensions, it is also important to remember that virtually every pension has its own set of rules and processes for division and distribution of assets within the fund. Simply agreeing to split such assets with your spouse on a do-it-yourself divorce document might not be enough to qualify as a division of the account, even if such an agreement is accepted by a court.

Working with an experienced Florida divorce attorney on issues related to dividing retirement accounts can help you anticipate the financial repercussions of required minimum distributions or other financial liabilities that could accompany the division, like potential tax consequences. It is important to keep in mind that a QDRO cannot bestow a benefit that is non-existent under the terms of the account in question.

Splitting Things Down the Middle is Not Always Ideal

Not everything is completely black and white, and splitting retirement accounts is no exception. In fact, often times splitting a retirement account down the middle can be disadvantageous for both spouses as it fails to take into account important long-term considerations. For instance, if you do not want to keep the home but your spouse cannot afford to buy you out and wants to keep the home, you may be able to work out an agreement that leaves your retirement account intact while allowing your spouse to remain in the marital home. Perhaps the appreciation of the value of the home will more than make up for not having access to your retirement account, or vice versa. The important thing to remember about retirement accounts, as with any aspect of division of property in a Florida divorce, is that there are multiple ways to approach it and do-it-yourself forms or programs do not always take a variety of options into consideration.

Finding Peace of Mind

An experienced Florida divorce attorney should be able to help you feel secure in knowing that your rights are being protected at every step of the Florida divorce process. That is why choosing the right attorney is so important. Scott J. Stadler understands not only the nuances of Florida divorce law, but how those nuances affect real people. Exploring every option available to you during a divorce can help you have peace of mind knowing that you are making the right decisions for your future. If you are considering Florida divorce, contact Scott J. Stadler to schedule a consultation where you can find out more information about what the Florida divorce process might mean for you.