Virginia circuit courts have exclusive jurisdiction to hear and adjudicate divorce matters. Upon decreeing the dissolution of a marriage, the circuit court is charged with dividing the property, both assets and debts, of the parties. Once the court has classified and valued the assets and debts of the parties, the court then divides the property based on the equities of the case. This division of assets leaves many people worried about how defined contribution retirement accounts, such as private 401(k) and federal thrift savings plans, will be treated in a divorce.

To divide the account and keep the account’s tax status, the court must enter an order that complies with federal regulations. To divide a federal thrift savings plan, governed by the Federal Employee’ Retirement System Act of 1986 (FERSA), the court must enter a retirement benefits court order. To divide a private 401(k) account, governed by the Employment Retirement Investment System Act of 1974 (ERISA), the Court must enter a qualified domestic relations order (“QDRO”).

A QDRO must be “qualified” to be enforceable against a thrift savings plan. Pursuant to 5 Code of Federal Regulations § 1653.2(a), a retirement benefits court order is “qualified” if it, among other things, expressly relates to the participant’s thrift savings plan, orders that payment be made to a permissible party, orders payment of a specific dollar amount or percentage of the account, and orders the distribution pro rata from all funds that comprise the account. A domestic relations order must also be “qualified,” i.e. a QDRO, to be enforceable against a 401(k) retirement account.

After the plan administrators determine that the domestic relations orders are “qualified” (“QDROs”) under applicable federal law, the plan administrator will divide the assets according to the QDRO. The party who owned and funded the account will not pay a penalty for the division of property, and the party receiving the property will have the ability to retain the tax-benefits of the account. Retaining these benefits is an important way for Virginia residents to remain prepared for retirement even after a divorce.

Although the division of retirement accounts seem relatively straight forward, there are complex and nuanced issues that one much consider and address in the division to ensure your interests are protected. For example, if you are the recipient of the funds of your ex-spouse’s 401(K), you may want to ensure the gains and losses on the marital monies are captured in the division. Alternatively, if it’s your account that is being divided, it’s imperative that you retain the gains and losses on any separate contributions such as pre-marital and/or post-separation contributions you have made and address any loans you may have on the account, especially if those loans were incurred to pay marital debts.

At Family Law Group, we are well versed in the intricacies of dividing retirement accounts and are ready and willing to ensure you are financially protected in this arena. Our team of compassionate and dedicated attorneys look forward to guiding you through this process.