For many divorcing couples, the two largest assets are the equity in the marital home and the retirement plans that the couple have accumulated. Accordingly, these are the two main assets to be divided in the event of divorce.

Retirement plans take on many different forms and three types are listed below:

1. Individual Retirement Accounts (IRAs) - usually an account at a bank or other financial institution that a party contributes to each year;

2. 401k plans - a plan administered by an employer that an employee contributes to out of each paycheck;

3. Pension Plans - generally, a set amount awarded to an employee at retirement age, usually paid monthly. These types of plans, known also as "defined benefit plans" are being offered less and less by employers. Most private sector employers are phasing out this type of plan.

If, as part of the distribution of the assets, the parties decide to divide a retirement plan, a Qualified Domestic Relations Order is usually required, called QDRO for short (pronounced "Quadro"). What is a Qualified Domestic Relations Order? A qualified domestic relation order is a domestic relations order (court order) that creates or recognizes the existence of another person’s right to receive, or assigns to another person the right to receive, all or a portion of the benefits in a retirement plan. By law, a QDRO must include certain information and meet certain requirements.

Generally speaking, a party cannot touch their retirement benefits until they are of retirement age, without incurring current taxes and penalties. A QDRO divides the retirement benefits at the source and places a portion (or all of the assets) in another person’s name without incurring the tax liability or penalties, even if the parties are no where near retirement age.

In some marriages, only one individual is contributing to a retirement plan. The other spouse may not be working or may not be earning enough to contribute to a plan. Sometimes, for cash flow reasons, only one party contributes to a retirement plan while the other pays certain bills or expenses. Upon separation or divorce, a QDRO provides the mechanism to divide this asset, without incurring current taxes or penalties.

Divorcing persons deciding on a distribution of assets must prioritize retirement planning. A qualified financial planner or accountant can assist with setting goals. If division of a retirement plan is part of the distribution of assets, anticipate the need for a QDRO and discuss it with your attorney as part of the overall strategy in divorce.