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RETIREMENT PLANS FAQ #7

7. P otential Claim Against Your Benefit - Divorce

In general, your retirement plan is safe from claims by other people. Creditors to whom you owe
money cannot make a claim against funds that you have in a retirement plan. For example, if you
leave your employer and transfer your 401(k) account into an individual retirement account (IRA),
creditors generally cannot get access to those IRA funds even if you declare bankruptcy.

Federal law does make an exception for family support and the division of property at divorce. A state
court can award part or all of a participant's retirement benefit to the spouse, former spouse, child, or
other dependent. The recipient named in the order is called the alternate payee. The court issues a
specific court order, called a domestic relations order, which can be in the form of a state court
judgment, decree or order, or court approval of a property settlement agreement. The order must
relate to child support, alimony, or marital property rights, and must be made under state domestic
relations law. The plan administrator determines if the order is a qualified domestic relations order
(QDRO) under the plan’s procedures and then notifies the participant and the alternate payee. If the
participant is still employed, a QDRO can require payment to the alternate payee to begin on or after
the participant’s earliest possible retirement age available under the plan. These rules apply to both
defined benefit and defined contribution plans. (see QDROs).

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