During a marriage, the retirement benefits earned by either spouse are considered the property of the marital community. There are two main types of retirement benefits: defined benefit pension plans (like the Arizona State Retirement System, the Public Safety Personnel Retirement System, or military retirement) and defined contribution retirement plans (like 401k and 403b plans). A defined benefit plan entitles the employee to receive a certain monthly financial benefit usually based upon a calculation of their years of service and their level of earnings in the years leading up to retirement. Such plans typically have survivor benefit options which must be addressed during a divorce. A defined contribution plan is a plan in which a spouse invests money over time which is typically matched by the employer up to a certain percentage. These investments gradually grow over time leaving a pool of money to draw upon in retirement.
Retirement benefits generally can be divided in a divorce in Arizona.
However, Social Security payments, compensation for military injuries, and worker’s compensation disability awards are not classified as community property and may not be divided by the court. Many retirement plans are governed by federal law known as ERISA (the Employee Retirement Income Security Act of 1974). To divide ERISA-qualified retirement assets without triggering tax issues, a Qualified Domestic Relations Order (QDRO) is required. A QDRO is a court order that instructs one party’s retirement plan on how the benefits should be divided and paid out. Unbeknownst to many, a divorce decree stating that a spouse has the legal right to the other spouse’s retirement benefits does not actually complete a transfer of those benefits. A further court order is often needed.
The handling of your divorce case and division of the marital assets can have a long-lasting effect on you and your financial and personal wellbeing. It is important to understand your rights in the retirement benefits earned during marriage and how they should be divided.
The short answer is yes: retirement benefits earned and accrued during the marriage are considered community property and are therefore subject to division in a divorce. Retirement benefits can be a tricky area in a divorce, especially when one’s employment extends to both before and during the marriage. However, the exact value of the benefits that each party is entitled to depends on a variety of factors, including the time at which they were earned, and the reasons for which they were earned, among others. Once the parties determine exactly who is entitled to what, a Qualified Domestic Relations Order, or QDRO, may be needed. A QDRO is a special court order that addresses the division of retirement benefits.