Many people spend decades saving money for retirement. But if they are married during part or all of that time, what happens when they divorce? The answer varies. There are options.

Besides a home, oftentimes a retirement account may be the most significant asset a person has. A spouse may have spent many years, or even decades, building up a retirement plan to use in the future.

So what happens to this nest-egg when people divorce? The answer varies, but knowing the facts about your rights can be important.

FEDERAL LAW CONTROLS

Retirement plans are controlled by federal law. As a general rule federal law overrules state law.

State law usually controls divorces. This means that no matter what a divorce judge says, it may not be enforceable if it does not comply with what federal law requires.

THE VALUE OF YOUR RETIREMENT PLAN BEFORE YOU MARRY IS USUALLY YOURS

As a general rule, the value of your retirement plan before the day you marry is your asset. Even though after you marry many things change, this usually does not.

This means it is important to know what the value of your retirement plan is before you marry. In some states, the law says the increase in the value of your pre-marriage retirement plan money remains yours even though it grows during your marriage. It is important to ask your attorney what your state law says about this.

Money you or your employer put into your retirement plan after you marry, however, is usually not just yours. After a person marries, everything they earn and everything their employer pays for them may be considered a marital asset. This means after someone marries, all the money they make, all the money they put in their retirement account, and all the money their employer puts in their retirement account for them, is not just theirs. Their spouse may have an interest in it.

HOW TO SPLIT UP A RETIREMENT ACCOUNT?

In order to split them up, the trial judge must enter a Qualified Domestic Relations Order (QDRO). The QDRO is then provided by one of the spouses to the plan administrator. It instructs the plan administrator how to divide the money in a non-IRA retirement account.

As a general rule a non-IRA retirement account may be split into two different accounts. If the parties agree, they may choose how to split up the retirement account by percentage. This means a retirement account may be split in half, one party may receive two-thirds and the other one-third, one party may receive 75% and the other 25%, etc.

WILL I BE PENALIZED FOR SPLITTING UP MY RETIREMENT DURING A DIVORCE?

Not necessarily. As a general rule if someone takes money out of a retirement account before they are allowed to do so, they are penalized. This can include being taxed on the money taken out. And that can add up.

A QDRO allows someone to split up their retirement account without being penalized for doing so. Basically, a QDRO either splits up a retirement account into two parts, or it allows a spouse to give all of their retirement account to another spouse. If it is split into two parts, then one part remains with the person who had the retirement account. The second part goes to the other person.

A QDRO can be an effective way of transferring or splitting up a retirement account without being subject to the penalty that people must otherwise pay for taking money out of a retirement account before they are allowed to do so. QDROs do cost money. But they are oftentimes much less expensive than the penalty associated with taking money out of a retirement account before the person is allowed to do so.

MAY I USE RETIREMENT ACCOUNT PROCEEDS TO PAY ATTORNEYS’ FEES WITHOUT BEING PENALIZED?

This may be a possibility. There is federal law which allows a spouse to use a QDRO to take money from another spouse’s retirement plan and then use it to pay the attorneys’ fees of the spouse who did not own the plan.

A qualified professional is necessary to make the determination of whether a spouse can use a QDRO and how a QDRO may be used.