Ohio operates under the principle of equitable distribution. This means that marital property is divided fairly, though not always in a perfectly equal 50/50 split. Retirement benefits acquired during the marriage are considered marital property, regardless of which spouse’s name is on the account.
Marital vs. Separate Property in Retirement
The first step in any division is determining what portion of the account is marital. Contributions made from the date of the marriage until the date of legal separation or divorce are generally subject to division. However, any funds you contributed before you said “I do” are typically considered separate property when it comes to dividing retirement accounts in Ohio divorce.
Valuing these accounts can be complex, especially with fluctuating market rates or defined benefit pensions. A skilled attorney will work with financial experts to trace pre-marital balances and ensure you keep what is rightfully yours while receiving your fair share of the marital growth.
What is a QDRO and Why is it Necessary?
A Qualified Domestic Relations Order, or QDRO, is a specialized legal document that instructs a retirement plan administrator on how to pay a portion of an employee’s benefits to an ex-spouse.
You might assume that a standard divorce decree is enough to split an account, but plan administrators cannot legally release funds based on a decree alone. Because most employer-sponsored plans are governed by federal law (ERISA), they require this specific, court-approved order to recognize the ex-spouse as an alternate payee.
Accounts That Require a QDRO
Not every retirement vehicle uses a QDRO. Generally, these orders are used for:
- 401(k) and 403(b) Plans: Standard employer sponsored investment accounts.
- Private Sector Pensions: Traditional defined benefit plans from private companies.
- Profit Sharing Plans: Employer contributions based on company performance.
The Ohio Exception: The DOPO
If you or your spouse are public employees, such as teachers (STRS), police officers (OP&F), or state workers (OPERS), a QDRO will not work. Ohio public pensions require a Division of Property Order (DOPO). These follow state-specific statutes rather than federal ERISA guidelines and have their own rigorous formatting requirements.
IRAs and Simple Transfers
Individual Retirement Accounts (IRAs) do not require a QDRO. Instead, funds are typically moved via a transfer incident to divorce. While simpler, this process still requires careful wording in your separation agreement to ensure the transfer remains tax-free.
The Benefits of a Properly Executed QDRO
One of the primary reasons to use a QDRO is to avoid the 10% early withdrawal penalty usually levied by the IRS on distributions taken before age 59½. When a QDRO is used to transfer funds directly into the recipient’s own retirement account or IRA:
- No Immediate Taxes: The transfer is treated as a tax-free rollover.
- No Penalties: The standard early withdrawal penalty is waived for the alternate payee.
- Financial Independence: The recipient gains their own separate account, allowing them to manage their future investments independently of their former spouse.
Common Pitfalls in the QDRO Process
The QDRO process is highly technical, and even a small clerical error can lead to the plan administrator rejecting the order. Some common issues we see include:
- Valuation Dates: Failing to specify the exact date for the division, which can lead to disputes if the market changes significantly before the order is signed.
- Survivor Benefits: Forgetting to include language that protects the ex-spouse’s interest in the event the plan participant passes away before or after retirement.
- Outstanding Loans: Not accounting for existing 401(k) loans, which can unintentionally decrease the amount available for the other spouse.
Let KRK Family Law Help
Navigating the division of retirement assets requires a blend of domestic relations expertise and financial literacy. At KRK Family Law, we assist our clients in drafting precise QDROs and DOPOs that meet the strict requirements of both the court and the specific plan administrators.
Securing your retirement is about more than just surviving the divorce; it is about thriving afterward. If you are concerned about your retirement savings or need assistance with the QDRO process, contact us today to schedule a consultation.