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How do I divide my pension in a divorce?

On Behalf of | Aug 2, 2022 | Divorce

The division of property may be the most technically challenging part of your divorce, and it’s important to your future that you get it right. You want to make sure you have the resources you need to support yourself in your newly independent life.

Community property

Under Arizona’s community property law, most assets and debts acquired during a marriage are jointly owned by the spouses. Should the spouses decide to divorce, they must divide this property in a way that is fair to both parties.

Property that either spouse owned before the marriage is generally considered to be separate property, and does not have to be divided in divorce. However, some types of separate property can become commingled during the marriage. For instance, one spouse may own a home before the marriage, but the other spouse gains a property interest in it if they contribute to the mortgage, improvements and upkeep of the home during the marriage.

Some of the most complex issues of commingled property involve assets such as pensions and retirement accounts that have not yet matured. An employment-related pension may be in one spouse’s name only, but if it grows in value during the years of the marriage, the other spouse has a property interest in some of this added value. If the couple decides to divorce before the account has matured, some of this added value should go to the other spouse. But here’s the big problem: If the account has not yet matured, neither spouse can withdraw the funds without incurring significant taxes and penalties.

Using a QDRO

One way to get around this problem is by using a Qualified Domestic Relations Order, or QDRO. With a QDRO, a court directs the financial institution holding the account to divide the account between the spouses. Instead of withdrawing the account, the receiving spouse can put the funds into their own qualifying account for use as a retirement fund. They may face some taxes for converting the funds, but these taxes are nowhere near as high as they would be for withdrawing the funds.

Property division is tricky. It’s important to have help from an experienced attorney to make sure you reach a settlement that respects your rights and your needs.