For many divorcing couples in Connecticut, retirement assets—such as 401k plans, pension plans or IRA accounts—represent a substantial portion of the marital estate. This tends to be especially true in marriages of long duration. Accordingly, it is not surprising that many of our clients express concerns about whether they will be entitled to share in retirement assets that are titled in their spouse’s name and, if so, what this will look like. Just like assets such as bank accounts, real estate, cars or jewelry, retirement assets are a form of property that can be divided at the time of a divorce. In fact, the division of retirement assets is often a critical component of a divorce settlement or divorce decree.
As an initial matter, it is important to understand that many different kinds of retirement assets exist, and that they are all divisible in a divorce in one form or another. The focus of this article, however, is on employer‐sponsored “qualified” retirement plans, which are retirement plans that are afforded special favorable tax treatment because they satisfy certain federal requirements. Common examples of qualified retirement plans that may comprise part of a marital estate are 401(k) plans or pension plans. Fortunately for divorcing couples, there is a mechanism called a Qualified Domestic Relations Order (commonly referred to as a “QDRO”), pursuant to which qualified retirement plans may be divided between divorcing spouses (whether at a 50/50 allocation, or otherwise) without these funds losing their favorable tax treatment and without application of any early-withdrawal penalties. In short, a QDRO is a judicial order that assigns to the non‐titled spouse (referred to as the “alternate payee”) the right to receive all or a portion of the benefits payable to the titled spouse (referred to as the “participant”) under a qualified retirement plan.
