Dividing Retirement Accounts in an Oregon Divorce

Retirement accounts and pension plans are typically divided between the parties in Oregon divorce cases. Retirement benefits are typically considered to be a property interest (as opposed to an income source), and they are therefore treated differently than spousal support.

Dividing Retirement Benefits and Pensions in Divorce

Whenever the Court renders a judgment of marital annulment, dissolution or separation, the Court may provide in the judgment for a variety of forms of relief, Marital assets can be divided by the Court, and retirement benefits and pension funds are considered marital assets.

ORS 107.105(1)(f) provides as follows:

For the division or other disposition between the parties of the real or personal property, or both, of either or both of the parties as may be just and proper in all the circumstances. In determining the division of property under this paragraph, the following apply:
(A) A retirement plan or pension or an interest therein shall be considered as property.
(B) The court shall consider the contribution of a party as a homemaker as a contribution to the acquisition of marital assets.
(C) Except as provided in subparagraph (D) of this paragraph, there is a rebuttable presumption that both parties have contributed equally to the acquisition of property during the marriage, whether such property is jointly or separately held.
(D)(i) Property acquired by gift to one party during the marriage and separately held by that party on a continuing basis from the time of receipt is not subject to a presumption of equal contribution under subparagraph (C) of this paragraph.

While there is no hard-and-fast rules for disposing of or dividing retirement plan benefits, long-term marriages typically see a near equal division of retirement assets. Oregon presumes that both parties to a marriage have contributed equally to the marital estate– include towards retirement accounts. However, the parties’ relative contributions and the extent to which the parties maintained separate finances or commingled their financial affairs, are factors that can be rebutted at trial.

When there have been pre-marriage contributions to retirement accounts and pension plans, the portion of retirement benefits that accrued prior to marriage is generally not considered marital property. However, the increase in value of that portion (the appreciation) may be considered marital property. Also, additional contributions made during the marriage will likely be considered marital property. It’s important to keep in mind that Oregon courts have substantial equitable power. Therefore, even non-marital property may be subject to disposition and division in an appropriate case to reach a “just and proper” result.

Understanding QDROs: A Guide to Dividing Retirement Plans in Divorce

What is a QDRO and Why Do You Need One in a Divorce?

When you go through a divorce or legal separation, dividing assets can be complicated, especially when it involves retirement plans. If a retirement plan is part of your marital assets, you may need a Qualified Domestic Relations Order (QDRO) to ensure the division is done legally and correctly. This guide explains everything you need to know about QDROs in simple terms.

What Makes Retirement Plans Different from Other Assets?

Retirement plans are special because federal law protects them. Unlike bank accounts or investment portfolios, retirement plans are shielded from most legal claims, including bankruptcy. This protection ensures people have funds available when they retire.

However, in 1984, Congress created an exception for divorces. Under this exception, retirement plans can be divided between spouses using a QDRO, which is a court order that tells the plan administrator how to divide the benefits.

What Exactly is a QDRO?

A QDRO is a legal document, separate from your divorce judgment, specifically designed to divide retirement plans. Each retirement plan has its own rules, so the QDRO must be tailored to meet the plan’s requirements. For example, some plans allow lump-sum payouts, while others only offer monthly payments during retirement. The QDRO ensures that the division complies with the plan’s rules and federal laws.

Why Do You Need a Specialist to Draft a QDRO?

Drafting a QDRO is complex because:

Retirement plans vary: There are many types of plans, including 401(k)s, pensions, profit-sharing, and more.
Plan rules differ: Each plan has unique guidelines about how benefits can be divided.
Expertise is required: Divorce lawyers are generalists, but QDROs involve specialized knowledge of pension laws. Mistakes in drafting can delay the process or result in the QDRO being rejected.

Do You Need Multiple QDROs?

If there are multiple retirement plans involved, such as both spouses having their own 401(k)s or pensions, you will need a separate QDRO for each plan. However, in some cases a spouse may have enough funds in one retirement account that an inequal division of that account will eliminate the need to separate multiple retirement accounts of the parties.

What is the Process for Obtaining a QDRO?

Divorce Judgment: The divorce decree will outline how the retirement assets should be divided.
Drafting the QDRO: A specialist drafts the QDRO, ensuring it complies with the specific retirement plan’s rules.
Plan Pre-Approval: The draft QDRO is sent to the plan administrator for review and approval.
Court Approval: Once approved, the QDRO is signed by the judge.
Implementation: A certified copy of the QDRO is sent back to the plan administrator, who divides the benefits accordingly.

This process can take 3 to 6 months or longer, depending on cooperation and plan procedures.

When Can the Former Spouse Access the Funds?

Defined Contribution Plans (e.g., 401(k), 403(b)): Funds are typically accessible after the QDRO is finalized. Options include a lump-sum withdrawal, a rollover to an IRA, or a combination of both.
Pensions: Payments usually begin when the plan participant reaches the plan’s retirement age. In some cases, the former spouse can start receiving reduced payments earlier.

Are There Tax Implications?

For the Former Spouse: Withdrawals are subject to income tax, but the 10% penalty for early withdrawals is waived if taken under a QDRO. Alternatively, funds can be rolled into an IRA to defer taxes.
For the Participant: The participant is not responsible for taxes on amounts awarded to the former spouse.

Why is Timing Important?

While there is no strict deadline to finalize a QDRO, delays can cause issues, such as:

Loss of benefits if the participant retires or starts drawing payments before the QDRO is completed.
Complications if the participant remarries or dies.

Starting the QDRO process as soon as possible after the divorce is finalized—or even before—can prevent these problems.

Final Thoughts

A QDRO is essential for dividing retirement plans in a divorce. It ensures that the division is done fairly and in compliance with the law. Because the process can be lengthy and complex, working with a qualified specialist is crucial. If you’re navigating a divorce involving retirement assets, understanding and addressing QDROs early will save you time, stress, and potential financial loss.

If you are facing a divorce where retirement accounts are subject to division or pension plans are subject to allocation, contact our office. In addition to the substantial value of many of these benefits, there may also be tax consequences to consider when dividing these assets during divorce, and we can refer you to a tax specialist.