Dividing Retirement Accounts in Divorce: What You Need to Know
Retirement accounts are often some of the most valuable—and complicated—assets to divide in a divorce. Whether you're dealing with a 401(k), IRA, pension, or public employee plan, each type of account is handled differently under the law. Understanding how this works can help you avoid costly mistakes and protect your financial future.
Are Retirement Accounts Considered Marital Property?
In most cases, property earned during the marriage is considered marital property. But retirement accounts can be a bit trickier. That’s because contributions may have been made before, during, and even after the marriage.
How Do You Calculate the Marital Portion?
In Missouri, we often use something called the coverture fraction to determine what percentage of a retirement account is marital.
Years of marriage while retirement accrued
———————————————————-
Total years of employment at retirement
Example:
Susan worked at X Company from 2000 to 2015 (15 years).
She was married to Mark from 2010 to 2015 (5 years).
5 ÷ 15 = 33.33% of her retirement account is considered marital property. Mark may be entitled to half of that 33.33%.
How Are 401(k)s Divided?
A 401(k) is a defined contribution plan, and its value is usually shown clearly on statements. To divide it during divorce, you’ll need a Qualified Domestic Relations Order (QDRO). This legal document allows for a penalty-free division between spouses.
What Can the Receiving Spouse Do with the Funds?
If you’re the spouse receiving a portion of a 401(k), you generally have four options:
Take a lump-sum cash withdrawal
Roll the funds into your own retirement account
Withdraw part and roll the rest over
Roll over the entire amount and wait to withdraw later
Tax Implications and Penalties
Funds distributed through a QDRO are exempt from the 10% early withdrawal penalty (IRS Code Section 72(t)(2)(C)). However, they are taxed as ordinary income unless rolled over.
🚨 Heads-Up:
The IRS requires 20% tax withholding on distributions not rolled over. For example, if you want $20,000 in cash, you’ll need to request $24,000 to account for the withholding.
💡 Pro Tip: Speak with a tax advisor or CPA before deciding how to receive your funds.
Dividing Pensions in a Missouri Divorce
Defined Benefit vs. Defined Contribution Plans
A pension is a defined benefit plan, meaning it pays monthly income during retirement. Some pensions—like military, teacher, or government pensions—require special rules during divorce.
Step 1: Determine the Marital Portion
Only the portion earned during the marriage is considered marital property. The coverture fraction is commonly used here, too.
Step 2: Choose a Division Method
You generally have two options:
A. Present Value Buyout
An actuary or Certified Divorce Financial Analyst calculates the current value of the pension. One spouse keeps the pension, and the other receives an equal share in other marital assets (like home equity or investments).
B. Deferred Distribution
Also called “if, as, and when” division, this method defers payments until the pension pays out. It’s simpler and doesn’t require a complex valuation but does require a QDRO or similar order.
Missouri Public Employee Retirement Plans in Divorce
Public plans like MOSERS, LAGERS, and PSRS (Public School Retirement System) have unique rules.
MOSERS & LAGERS
These systems require specialized court orders, not traditional QDROs. Some allow direct payments to former spouses; others don’t.
🔗 MOSERS Divorce Guidelines
🔗 LAGERS Divorce Rules
Teacher Retirement (PSRS)
Missouri teacher retirement plans cannot be divided by court order. However, the value of the retirement benefit still counts as a marital asset.
Example:
Mark: $50,000 teacher retirement
Total marital assets: $200,000
An equitable division might look like:
Mark: $50K retirement, $25K home equity, $5K cash
Susan: $75K home equity, $10K cash, $15K vehicle
QDRO Timeline: Don’t Wait Until the End
QDROs can take several months to finalize. Waiting until after your divorce is complete can delay the distribution—or lead to rejection by the plan administrator.
✅ Start drafting the QDRO early
✅ Coordinate with the plan administrator
✅ Submit it with your divorce judgment, if possible
Work With Divorce and QDRO Professionals in Missouri
When retirement accounts are on the table, you need the right team:
👩⚖️ Family Law Attorney – to protect your legal interests
🧾 CPA or Tax Advisor – to guide you through tax consequences
📊 Certified Divorce Financial Analyst (CDFA) – for accurate asset valuation
Need Help Dividing Retirement Accounts in Divorce?
At Lotspeich Law, LLC, we help Missouri clients navigate the financial and legal complexities of divorce—including the division of retirement assets. Whether it’s a pension, 401(k), or government retirement plan, we’ll make sure your rights are protected.
📞 Contact us today to schedule your confidential consultation.
Disclaimer: Lotspeich Law, LLC is not a tax attorney or a tax advisor. For a comprehensive understanding of the tax implications of a property division and retirement withdrawals during your divorce, please consult your Certified Public Accountant (CPA) or another qualified tax professional.
