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It’s no secret that divorce is about division. Of course, there is the initial division in your relationship that leads to the divorce itself, but even after making the difficult decision to divorce, most couples face additional issues associated with dividing their marital property. Typically, the longer you are married, the more property you’ll have to divide – and the truth is, that can be complicated, both emotionally, and in terms of understanding what legal rules might apply to the property you’re trying to divide. 

When many people think of dividing property they think of dividing items – the marital house, cars, family heirlooms. Of course, non-tangible items like bank accounts are often considered too. Often, however,  there are also other assets that are very valuable, and which many people might not initially consider – although they can ultimately be very valuable in the long run. Retirement accounts are one such asset. Many people wonder whether retirement accounts have to be divided and if so what the “rules” about that division are, and that’s understandable. 

Sure, retirement accounts, like bank accounts and stocks or other investments, are “intangible” assets. You can’t hold them in your hand, and their value may fluctuate significantly over time. Unlike a simple checking or savings account, however, retirement accounts can often be a bit more complex when it comes to matters of property division. Of course, there are varying types of retirement accounts – 401(k) accounts, Roth IRAs, employer-funded pensions, and more, and each has its own unique set of rules. 

Understanding the Difference Between a QDRO and a DRO and Why it Matters 

Here in North Carolina, we are often asked about state employee retirement accounts as well, and certainly feel that is an important subject to address. Obviously, each couple and every marriage has its own unique set of circumstances. As a result, and depending upon your particular situation, there may or may not be varying legal qualifications that apply to your situation that make it slightly different from others. Generally, however, there are a few helpful things to know about state retirement accounts if you are contemplating divorce and dividing your property.

One of the most important things you’ll need when dividing a North Carolina State Retirement Plan run is a Domestic Relations Order, or DRO for short. A DRO is an order allowing the state retirement account to be divided and distributed to the beneficiaries of the account without harsh tax penalties that might otherwise be assessed. If you have previously been through a divorce, or if you’ve simply known others who have, you may have heard of a qualified domestic relations order or QDRO. That type of order applies to qualified employer plans that are subject to the Employee Retirement Income Security Act, more commonly known as ERISA. 

Why is that important? Certainly, all of these acronyms can become confusing. One significant reason is that when it comes to dividing a retirement account there is a distinct difference in how accounts that are governed by ERISA handle changing the beneficiary of the plan, as opposed to non-ERISA accounts. Ultimately, if the owner of a retirement plan that is subject to ERISA wants to change his or her beneficiary, the spouse of the plan owner would have to sign something explicitly waving his or her rights to the benefits before any change could be made. For state employee plans, however, which are generally not subject to ERISA, the plan owner often has more freedom to make such changes. 

Typically, neither federal nor state government retirement plans are subject to ERISA, and instead of using a QDRO to distribute funds from their retirement plans, state employees would utilize a DRO instead. Not all plans require a DRO. If you have a public pension plan that was acquired through employment with a state agency – for example, the Teacher and State Employees Retirement System or the Local Government Employees Retirement System, you usually will have a DRO to divide your account, between yourself and your named beneficiary, who is often your spouse. 

Defined Contribution and Defined Benefit Plans

As noted, the two most common plans that require a DRO are the Teachers and State Employee’s Retirement System and the Local Governmental Employees Retirement System (LGERS). There are also other types of defined contribution plans, which also require a DRO for the distribution of retirement assets. Many defined contribution plans are completely voluntary and can be divided incident to divorce at any time As a result, beneficiaries could begin collecting their share of the retirement benefits before the actual retirement of the employee spouse. 

By contrast, if a plan is a defined benefit plan, typically no disbursements can be taken from the plan until the plan owner, the employee spouse retires. In other words, if your spouse has a defined benefit state retirement plan and you divorce, even if you are ultimately found to be entitled to half of your spouse’s retirement, you won’t receive your marital share until your spouse retires and begins collecting the benefits as well.

The Law Office of Dustin McCrary – Here for You

If you find yourself contemplating divorce and feeling anxious about the property division process, or any of the other many issues that the divorce process involves, that is normal. Divorce can be stressful, and it can certainly feel overwhelming at times.  It’s an emotional process, and the last thing you need as you try to navigate those difficult emotions is to also feel stress about all of the legal issues involved. 

At the Law Office of Dustin McCrary, we are here to help relieve that stress, so that you can focus on moving forward. We are proud of our reputation for excellence, and for providing the guidance and effective representation that our clients need to move smoothly and successfully through the divorce process and onto the next bright chapter ahead. Call us anytime. We look forward to helping you soon.

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