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Dividing retirement assets in a divorce

Dividing property may be complicated when couples end their marriage, especially after accumulating assets from years of work. Dealing with retirement accounts in a divorce is one of the issues that need special attention.

Unique issues

Courts divide assets based on what it considers fair. Individual retirement accounts may be allocated through a court order or judgement. When negotiating a property division settlement, spouses should consider the tax consequences and delays with transferring IRAs.

Under federal law, IRAs may be transferred tax free if two conditions are met. First, the couple agreed to the transfer in their divorce decree or property settlement agreement. Secondly, one spouse transfers the funds directly from their IRA to the other spouse’s IRA.

Language matters

It is important to use specific terms and language in the divorce settlement agreement when dividing or separating retirement accounts. The documents must contain the correct legal terms and language.

IRA assets are allocated using a transfer incident to divorce process. Other qualified plans, however, are divided under a qualified domestic relations order. Mixing up these terms can complicate a divorce and cause confusion.


After your case is settled, it is unwise to withdraw money from a retirement account to get access to funds. The IRS will treat this as a taxable withdrawal.

QDRO Distributions

If you are receiving a distribution under a QDRO, you should consider whether you want to use those funds before you are 59½ years old. You may receive those funds directly from a QDRO and be exempt from a 10 percent tax penalty.

If you roll those funds over to an IRA and use them before you are 59½, however, you will have to pay the early distribution tax penalty.


Divorce is also the time to double-check your heirs contained in your wills and your named beneficiaries in insurance policies, retirement, and similar accounts. Proceeds from these accounts and insurance policies go to the named beneficiaries regardless of your will’s directions. Update these documents so your assets do not pass on to unintended beneficiaries.

An attorney can help you determine your needs and present you options for your divorce. They can also assist you with seeking a property division decree that meets your needs and is fair and reasonable.


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