Dividing Retirement Accounts in Massachusetts Divorce: 401k, Pension, IRA
Retirement accounts are often the largest marital asset after the family home. In Massachusetts, the marital portion of retirement accounts is subject to equitable distribution. Dividing these accounts requires specific legal tools like QDROs and careful tax planning. Mistakes here can cost you tens of thousands of dollars. Here is how to handle every type of retirement account.
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Talk to AI AdvisorTypes of Retirement Accounts and How They Are Divided
401(k) and 403(b) plans
Defined contribution plans with a clear account balance. Divided using a Qualified Domestic Relations Order (QDRO). Only the portion contributed during the marriage is marital property, though growth on pre-marital contributions may also be considered marital.
Traditional and Roth IRAs
Divided through a process called transfer incident to divorce (not a QDRO). Requires specific language in the divorce decree. Roth IRAs are worth more dollar-for-dollar than traditional IRAs because they are funded with after-tax money.
Defined benefit pensions
Promise a monthly payment at retirement based on years of service and salary. More complex to value because the future benefit must be calculated to a present value. Divided via QDRO or offset against other assets.
Military retirement pay
Governed by the Uniformed Services Former Spouses' Protection Act (USFSPA). The 10/10 rule determines whether the Defense Finance and Accounting Service (DFAS) will make direct payments to the former spouse. Divided via a military pension division order, not a QDRO.
Government pensions (federal, state, local)
Federal CSRS and FERS pensions are divided through a Court Order Acceptable for Processing (COAP). State and local pensions have their own rules. QDRO terminology may not apply.
The QDRO Process Step by Step
Obtain the plan's specific requirements
Contact the plan administrator and request their model QDRO or QDRO guidelines. Every plan has different requirements for language, formatting, and acceptable division methods.
Hire a QDRO specialist
Use an attorney or firm that specializes in QDROs, not your divorce attorney (unless they have QDRO experience). A typical QDRO costs $500-$2,000 to draft.
Draft the QDRO
The specialist drafts the order using the plan's required language. It must specify: the plan name, the participant and alternate payee, the amount or formula for division, and when payments begin.
Submit for pre-approval
Send the draft QDRO to the plan administrator before the judge signs it. The administrator reviews it for compliance and either approves or requests changes. This avoids rejected QDROs.
File with the court
Once the plan pre-approves the draft, submit the QDRO to the court for the judge's signature. The signed QDRO is a separate court order from your divorce decree.
Send the signed QDRO to the plan
The plan administrator receives the signed QDRO, processes it, and creates a separate account for the alternate payee (or begins payments for pensions).
Social Security and Divorce
- ✓If your marriage lasted 10 or more years, you may be entitled to Social Security benefits based on your ex-spouse's earnings record
- ✓You must be age 62 or older, currently unmarried, and your own benefit must be less than what you would receive on your ex-spouse's record
- ✓Claiming on your ex-spouse's record does NOT reduce their benefit or their current spouse's benefit
- ✓If you remarry, you lose eligibility for benefits based on the prior spouse's record (unless the new marriage also ends)
- ✓You do not need your ex-spouse's permission or cooperation to claim these benefits. Apply directly through the Social Security Administration
- ✓If your ex-spouse is deceased, you may qualify for survivor benefits, which can be significantly higher than spousal benefits
Tax Implications of Retirement Division
QDRO transfers are tax-free
Transferring retirement funds via a properly executed QDRO is not a taxable event. No income tax and no early withdrawal penalty at the time of transfer.
Special divorce exception for 401(k)
If you receive 401(k) funds through a QDRO and take a distribution (cash out), you pay income tax but no 10% early withdrawal penalty, regardless of your age. This exception only applies to employer plans, not IRAs.
IRA transfer pitfalls
IRA transfers incident to divorce are tax-free if done correctly. If the transfer is not documented in the divorce decree, it may be treated as a taxable distribution. Do not simply withdraw and give cash.
Pre-tax vs. post-tax comparison
A $200,000 traditional 401(k) is not equal to $200,000 in a savings account. After taxes (often 22-37%), the 401(k) may be worth only $130,000-$156,000. Always compare assets on an after-tax basis.
Valuing a Pension
Defined benefit pensions require special valuation because they pay a future monthly income rather than having a clear account balance.
- ✓The coverture fraction method: determines the marital share based on years of service during the marriage divided by total years of service at retirement
- ✓Present value method: an actuary calculates the current lump-sum value of the future pension stream using assumptions about life expectancy, discount rates, and retirement age
- ✓Offset method: instead of dividing the pension itself, the pension-holding spouse keeps the full pension and the other spouse receives an equivalent value in other assets (such as equity in the home)
- ✓Deferred distribution method: the pension is not divided until the employee spouse actually retires. The non-employee spouse receives their share of each payment when it begins
- ✓Hire a pension valuator or actuary for pensions with significant value. This typically costs $500-$2,000 and can save tens of thousands in an incorrect division
Every situation is different
Have retirement accounts to divide? Tell our AI advisor about your 401k, pension, or IRA and get guidance on how Massachusetts law applies.
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Legal Disclaimer: This article covers Massachusetts divorce law for general informational purposes only and does not constitute legal advice. Laws change frequently. Always consult a licensed Massachusetts family law attorney for advice specific to your situation.