ASK ANGIE^TM
By Angela Hallier, Esq.
Answers to your divorce and family law questions

Q How will my retirement plan or other tax-deferred assets I have accumulated during my marriage in connection with my employment be divided in my divorce?

A Any vested, tax deferred assets acquired during marriage, for example pension, retirement, or 401(k) plans, are considered community property and, therefore, subject to being equitably divided in a divorce in Arizona. (Vested means your right to the benefit or asset will not be forfeited if your employment relationship ends.) If part of your plan assets or entitlements were accumulated prior to your marriage, but contributions continued during the marriage (including employer contributions), only the assets or entitlements accumulated during the marriage are considered community property. Many tax-deferred plans connected with employment require a Qualified Domestic Relations Order (QDRO) in order to be divided. A QDRO is a separate order entered by the judge at the time of your divorce which directs the administrator of your plan to divide the assets according to the decree. A QDRO allows such division without penalty or taxes which might otherwise occur if monies were withdrawn from the plan outside of a divorce context. Depending on the type of plan being divided, your spouse may receive his or her share of the plan immediately, or they may have to wait until you are allowed to begin receiving distributions from the plan. Other tax-deferred accounts, whether acquired in connection with your employment or not (such as an IRA), may not require a QDRO, but can still be divided without penalty or taxation if divided in connection with a divorce. Another common benefit subject to division in a divorce is employee stock or stock options. Again, if the option grant occurred during the marriage, the options or stock purchased with the options are community property. While certain stock plans may be divided via a QDRO, other provisions may need to be made for the division of unexercised options as many companies do not allow their transfer. Because the granting, vesting, and exercise of such options vary greatly between companies, because the grants may occur for different reasons, and because the reason for the grant may affect whether the options belong to the community, you need, as always, to consult an attorney. And remember, if you want to keep your plan assets in exchange for some other community asset, you must remember to tax effect the value of the plan, stock, or stock options you are receiving. The $100,000 in your pre-tax 401(k) plan is not necessarily equal to the $100,000 equity in your marital residence.

It is always advisable to seek the counsel of a qualified attorney who can advise you specifically about your case. The information in this column is provided for general information only in the state of Arizona, is not specific to any one case and does not create an attorney-client relationship between the author and the reader. ©2003 - 2008 Hallier Law Firm PLC

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