In the case of a divorce in Florida, retirement benefits earned during the marriage (i.e., 401(k)s, IRAs, and pension benefits) are assumed to be marital property. The courts start off with a baseline assumption of equal distribution, but could deviate from this standard distribution depending on the statutory factors.
Dividing these assets requires careful planning because most retirement plans are governed by federal law and can only pay benefits to the participant or an alternate payee pursuant to a Qualified Domestic Relations Order (QDRO). Without a QDRO, a plan administrator cannot legally divide and distribute benefits.
What Is a QDRO?
Federal law defines a QDRO as a court order that legally assigns part or all of a retirement plan benefit to an alternate payee, typically a spouse. To be qualified, the order must specify the amount or percentage to be paid, the names and addresses of the participant and alternate payee, and the number of payments or period to which it applies. It cannot provide for benefits not available under the plan or require different actuarial assumptions than the plan uses.
How Florida Handles QDROs
For state employees, the Florida Retirement System (FRS) Pension Plan requires any domestic relations order dividing benefits to be submitted for approval. The FRS warns that processing a QDRO may take up to two months. The order often divides the marital portion of the pension benefits using a formula based on the length of the marriage versus total years of service.
Payments to the alternate payee begin when the member retires and elects to receive benefits. For defined contribution plans like 401(k)s, the QDRO directs the plan administrator to transfer the alternate payee’s portion to a separate account or pay it outright.
Tax and Practical Issues
According to the IRS, distributions under a QDRO to a spouse or former spouse are taxable to the recipient, not the plan participant. If the alternate payee rolls the payment into an IRA, taxes can be deferred.
QDROs are technical, and each plan has unique requirements. Therefore, it is wise to work with an attorney and contact the plan administrator early. Without a QDRO, you risk losing your share or incurring penalties for early withdrawal.
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