In a divorce, settlement of the pension fund is a critical part of the divorce settlement. You can’t simply decide to split the retirement funds or pension funds on your own. For this, you will need a legal document called the Qualified Domestic Relations Order.
This is a document that will be included in your divorce agreement, and will establish that your spouse has the legal right to a certain designated percentage of your retirement funds or benefits. Basically, a Qualified Domestic Relations Order will make your ex-spouse a co-beneficiary of your existing pension account. As soon as your ex-spouse becomes entitled to a percentage of your pension funds through the Qualified Domestic Relations Order, she will be responsible for the tax liability that applies to the pension or annuity.
It is very important that you speak with an attorney about getting a Qualified Domestic Relations Order, to divide the pension fund. If you transfer a percentage of your pension funds to your spouse without a Qualified Domestic Relations Order, you will end up paying taxes on the amount. Apart from the income tax liability that will apply to you, you will also be slapped with a 10% withdrawal penalty in certain situations.
A Qualified Domestic Relations Order is a complicated document, and you need expert legal advice to make sure that all of the provisions are included in your decree. That includes the name and address of you and your spouse, also known as the alternate payee, the division of the retirement account, the percentage of the benefits that will now be paid from the account to your ex-spouse, and the benefits covered by the order.
For help getting a Qualified Domestic Relations Order, and for answers to your questions about these documents, speak to a Colorado family lawyer.