Dividing Retirement Accounts: the QDRO
What is a QDRO and what does it have to do with my divorce?
A QDRO is a court order that divides retirement accounts. The term is an acronym for Qualified Domestic Relations Order.
Arizona is one of nine community property states. According to Arizona community property law, everything  that is acquired during marriage (assets and debts), including contributions to retirement accounts, is to be equitably divided. Equitably does not always mean equally, but Arizona case law supports an equal division of most community assets, including retirement assets.
Generally retirement benefits can only be provided to the participant (the employee) or his/her beneficiaries upon the employee’s death; however, during a divorce those benefits can be divided and awarded to the participant’s spouse.
What if I contributed to my retirement prior to marriage; is it still divided equally?
No. Only the community portion would be divisible. The contributions made prior to marriage are your sole and separate property and will remain so even after your divorce. The community portion of the account includes all contributions starting the day you got married and lasting until the divorce petition was served. Once the petition is served any contributions made are again sole and separate property and not subject to division.
Husband worked for his company from age 20-30. During that time he contributes $50,000 into his 401(k) account. Husband gets married on his 30th birthday. His marriage lasts until age 35. During those five years Husband contributes $50,000. On the date of service there is exactly $100,000 in Husband’s 401(k) account. That means $50,000 is community. Therefore each party has a community interest in that $50,000 and it must be divided. The first $50,000 would be Husband’s sole and separate property as it was contributed before marriage, i.e. before the community interest was created. Wife would have no interest in the community portion. Husband would retain his $50,000 as well as his community interest in the remaining $50,000. Husband would be awarded $75,000 of the account and Wife would receive $25,000.
I have a Pension; is that divisible? What if I earned a portion prior to marriage?
Yes. Pensions are divisible assets. Only the community portion of the pension would be divisible and your spouse would be awarded his/her community interest in that community portion.
Okay. I understand that the community portion is divisible. How do I go about getting the accounts divided?
Some plan administrators (the companies that hold the retirement accounts: Fidelity, Transamerica, etc. for the employers) will divide the accounts without a QDRO; however, many companies still require a QDRO to actually divide the accounts. If the company requires a QDRO, contact a family lawyer who prepares QDROs regularly as part of his or her practice. Not all family lawyers prepare QDROs regularly, so be careful.
My spouse took out a loan from his/her 401 (k). Will that affect my community interest in the account?
It depends. If the loan was used to purchase something for the community like a new roof, then yes, it would affect your interest. In that example the loan was used for a community purpose and therefore each party would have his/her interest lowered.
Let’s change the example so that your spouse has taken funds from the 401(k) and the money is unaccounted for. How would the account be split? The account should be treated as if the money were still in the account:
The account should have $100,000 but $35,000 was taken by Husband and is unaccounted for. There now is only $65,000 in the account. Each party should have received $50,000 but now there is not enough money in the account to award each $50,000. What happens? Wife would receive $50,000 from the account. Husband would receive $15,000. Husband has already received $35,000 from the early withdrawal. It would be inequitable to divide the remaining $65,000 because Wife did not share in the $35,000 that was withdrawn without her knowledge and consent. There would likely be tax consequences if the parties filed a joint return if Husband withdrew those funds. Wife should seek tax advice from a tax professional and potentially consult with an experienced family law attorney prior to filing a joint return, as the IRS may deem her to be an innocent spouse and spare her the tax liability created by Husband’s early withdrawal.
There may be a separate waste claim to pursue.
What if I don’t want to divide the accounts; is there any other option?
Yes. First look to see what the community interest in the account would be. Then look to see if there are other assets that can be used to offset your spouse’s interest in your retirement account. This can be your community portion of your spouse’s retirement account. If you both simply want to keep your own retirement benefits and agree that is fair, the Court will approve your division. If your spouse does not have a retirement account but you do, and there is a collector car, that is community. You could agree to offset your spouse’s interest with your interest in the collector car and allow your spouse to keep the collector car.
Do I need an attorney to divide my retirement accounts and other assets?
No. You are not required to have an attorney, but as always, we recommend that you consult with an attorney to protect your interests, including your retirement benefits.
 There are a few exceptions including inheritance and gifts, which are excluded.
 This example excludes interest on the account as well as gains and losses.