In North Carolina, interests in retirement accounts or benefits that are earned during the marriage are considered marital property that is subject to division between the parties upon divorce.
There are many different types of retirement plans and accounts. In order to divide certain types of retirement plans between spouses incident to divorce, federal law requires that a special court order be entered directing how the retirement plan administrator or trustee is to assign the plan’s benefits to each spouse in a divorce. These orders also allow the plan administrator or trustee to pay the plan benefits directly to the other spouse.
A Money Purchase Plan, 401(k), 403(b), Thrift Plan, Profit Sharing Plan, ESOP, and Tax-Sheltered Annuity are among the types of retirement plans that require a special court order known as a Qualified Domestic Relations Order (“QDRO”) to transfer a portion of one spouse’s retirement benefits or account to the other spouse incident to divorce. A Qualified Domestic Relations Order is the most common type of order required to divide retirement accounts.
Government and military pensions also require special court orders to divide retirement benefits between spouses, but these orders are subject to governmental regulations and procedures and are referred to by other names such as a Court Order Acceptable for Processing (“COAP”) or a Military Pension Division Order (“MPDO”).
An individual retirement account (“IRA”) does not usually require a special order if the parties have a judgment of divorce, and an equitable distribution judgment signed by a judge that specifies how the IRA is to be divided.
The preparation of a QDRO and other special orders that are necessary to transfer an interest in a retirement plan or account from one spouse to the other can be very complex and challenging. The present-day value of the plan may need to be determined, and if there is a separate component to the plan (a portion earned prior to the marriage or after the parties’ separation) that should also be determined. Whether the plan or account is divided by a percentage or a specific dollar amount is another factor that should be taken into consideration.
Preparing a QDRO or other type of unique order is best handled by a family law attorney who has specific experience in these types of orders. Typically these orders deal with accounts or benefits that are payable in the future, and mistakes in these orders may not be realized until sometime in the distant future. Therefore, it is important to make sure that they are done correctly from the outset.
This article is for information purposes only and is not to be considered or substituted as legal advice. The information in this article is based on North Carolina state laws in effect at the time of posting.