What Are the Laws Regarding IRAs and 401ks in a New York Divorce?

Divorce involves the division of all of the couple’s marital assets. In New York state, most assets acquired or accrued during marriage are considered marital assets and are divided according to the principle of equitable distribution, which means they are divided in a fair way under the circumstances but not necessarily equally. Retirement assets, including IRAs and 401k accounts, are included in this. However, the division of these assets can be complex and require a special court order.

Marital Assets and IRA Accounts

Individual Retirement Accounts (IRAs) are handled like any other marital asset. If the account was acquired during marriage, the entire account is considered a marital asset and is divided in the divorce. If it existed before divorce and increased in value during the marriage, then the increase in value would be considered a marital asset, which would be divided in the divorce. The judgment of divorce governs these types of accounts, and no further action is needed.

Marital Assets and Employer-Sponsored Retirement Accounts

If you or your spouse have an employer-sponsored retirement account, such as a pension or a 401k, that was opened during marriage or which increased in value during marriage, all or some of that account is considered a marital asset, and it must be divided in the divorce.

However, these assets are treated differently than other assets because they are covered by the Employee Retirement Income Security Act (ERISA). This federal law prohibits these types of accounts from being assigned to others. This provision was intended to protect these assets from creditors, but the effect of the law is that these accounts cannot be transferred simply via a judgment of divorce as other marital assets are. Instead, there is an exception to the law that requires extra steps in the divorce process to divide the account.

Dividing a 401k

If the court determines that all or some of a 401k or pension is a marital asset, it can divide the account as part of the divorce. The court will calculate the account’s value and determine what each spouse is entitled to.

For the account to be divided, a special court order called a Qualified Domestic Relations Order (QDRO) must be prepared, approved by the account plan manager, signed by the court, and then submitted to the plan. This is the only enforceable way the funds in this type of account can be divided in a divorce. These orders are very complex because every retirement plan has its own individualized language that must be included for it to be applicable. The order will be rejected if the language does not exactly match what the plan requires.

QDRO Pay Outs

Once the QDRO is signed by the judge and accepted by the plan, the funds can be paid to the alternate payee (the spouse receiving them). The QDRO may order that payment be made in one lump sum or as installment payments. The funds can be paid directly to the recipient spouse or rolled into their own retirement plan. The QDRO can also require that survivor benefits are payable to the recipient spouse if the spouse who owns the plan dies. It is essential to have your financial planner assess the best way to receive these funds and how to hold them after distribution.

The owner spouse does not face a withdrawal penalty for payment under a QDRO. The recipient spouse does not pay tax on the QDRO payment if the funds are rolled into a retirement account. If the funds are not placed in another retirement account, income tax applies, and an additional 10 percent fee is applied if the recipient spouse is under age 59 ½.

Children as Payees

In addition to making funds payable to a recipient spouse, a QDRO alternately can make the funds payable to the owner spouse’s children to secure child support payments ordered by the court. The other parent is usually named as the guardian of those funds and income tax must be paid on the money.

Retirement accounts are a part of almost every divorce. Since each account must be analyzed, valued, and handled individually, it is necessary to work with an attorney skilled in the complex rules controlling these accounts.


Eric Weinstein

Eric Weinstein, a partner at New York matrimonial litigation firm Bikel Rosenthal & Schanfield, brings an unconventional approach to the high-conflict disputes over complex assets for which the firm is known.

Eric’s reputation for skilled diplomacy and successful negotiation is backed by three decades of experience litigating high-stakes disputes in New York’s state and federal courts, related to the high-value assets, complicated income streams, and unique financial circumstances characteristic of high-net-worth New Yorkers and their spouses including.

To connect with Eric: 212.682.6222 | Online

For media inquiries or speaking engagements: [hidden email]