How do I divide retirement?

Courts in Virginia and North Carolina have the ability to divide assets acquired by a divorcing couple which were acquired during the parties' marriage. It does not matter if the asset is only in one person's name. Retirement accounts (pensions, 401k accounts, IRAs, etc.) can be divided by the court, even if the employee disagrees.

The Court can enter an order called a Qualified Domestic Relations Order ("QDRO"), which authorizes and orders the employer or account manager to establish a sub-account in the spouse's name and/or roll over a portion of the account into an outside account for the spouse. If the account is divided by a QDRO there is no current tax consequence to the employee. As long as the spouse places the funds in a proper retirement vehicle, often an IRA, the spouse will not have any current taxable consequence either.

You do not have to cash out an account, incurring taxable income and penalties, in order to divide it. Dividing it with a QDRO allows the parties to divide the asset and delay the taxable event until the account is actually accessed.