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Dividing retirement accounts in a divorce

On Behalf of | Mar 14, 2022 | High Asset Divorce

When a couple divorces, Virginia law requires that the parties divide their property in a way that meets standards of “equitable distribution.” To quickly summarize a complex process, this means the spouses must list all their assets and debts, decide what’s separate property and what’s marital property, and then divide the marital property in a way that meets standards of fairness.

None of this is easy, but some types of property are a lot easier to divide than others. A joint checking account, for instance, can be dissolved and the money divided in half, or according to the terms they parties have negotiated. It’s more difficult to divide something like the family home. The spouses will either have to sell it and divide the proceeds or devise a way for one spouse to purchase the other’s share.

It’s even more difficult to divide certain kinds of complex assets such as stock options and retirement accounts. In many cases, these are among the most valuable assets a married couple owns, but there are special considerations necessary for dividing them in divorce.

Penalty for early withdrawal

If you have a retirement in your name from your employer, you may wonder why you have to divide it with your ex. The answer is that in many cases, such accounts are considered as part of the marital property. This is especially true in cases where the account grew over many years during a longer marriage.

The complication comes up because you cannot simply make a withdrawal from your retirement account they way can from a checking or savings account. Most such accounts cannot be easily accessed until you are of retirement age. If you withdraw from the account before then, the financial institution will impose a hefty penalty. On top of that, you will face a stiff tax penalty. Together, the penalties could destroy most of the value of your account.


There is a way around this problem. Through a mechanism known as a Qualified Domestic Relations Order, or QDRO, you can divide a qualifying retirement account without actually withdrawing anything. The process works by getting a court order to instruct the financial institution to divide the account between the ex-spouses. Once the process is complete, your account is effectively divided into two accounts, one for you and one for your ex.

It’s important to remember that the accounts won’t necessarily be of equal value. “Equitable distribution” doesn’t mean everything gets divided in half. Instead, you will probably spend a lot of time negotiating a settlement that meets the standards of Virginia law.

None of this is easy, but it is absolutely crucial if you want to have the financial resources you need to start the next chapter in your life. A skilled attorney can help you understand the process and advise you of your options.