Retirement Savings Plan

Part 9: Potential Claims Against Your Benefit (Divorce)

In general, your retirement plan is safe from claims by other people. Creditors to whom you owe money cannot make a claim against funds that you have in a retirement plan. For example, if you leave your employer and transfer your 401k account into an individual retirement account (IRA), creditors generally cannot get access to those IRA funds even if you declare bankruptcy.

Federal law does make an exception for family support and the division of property at divorce. A state court can award part or all of a participant's retirement benefit to the spouse, former spouse, child, or other dependent. The recipient named in the order is called the alternate payee. The court issues a specific court order, called a domestic relations order, which can be in the form of a state court judgment, decree or order, or court approval of a property settlement agreement. The order must relate to child support, alimony, or marital property rights, and must be made under state domestic relations law. The plan administrator determines if the order is a qualified domestic relations order (QDRO) under the plan’s procedures and then notifies the participant and the alternate payee. If the participant is still employed, a QDRO can require payment to the alternate payee to begin on or after the participant’s earliest possible retirement age available under the plan. These rules apply to both defined benefit and defined contribution plans. For additional information, see EBSA’s publication, QDROs - The Division of Pensions Through Qualified Domestic Relations Orders, available by calling toll free at 1.866.444.EBSA (3272) or on the Web site at www.dol.gov/ebsa.

Action Items

If you are involved in a divorce, you should discuss these issues with your plan administrator and your attorney.