When New York residents are going through a divorce, they should expect that any retirement accounts they have will be divided with their spouses in their property division. The amounts contributed and the increase in value of the accounts during the marriage are in most cases considered to be marital property, even if only one spouse made contributions to the fund.
Some people try to work out agreements with their spouses regarding how to handle the division of their retirement accounts. If they are able to do this, they can arrive at a fair distribution of the assets between them that can be adopted as the court's order.
A spouse who stands to receive funds from their spouse's retirement account must file specific documents with each account so the amount ordered can be received. A failure to do so may give rise to taxes and penalties for early withdrawals. For employer-sponsored plans, pensions and 401(k) accounts, a separate Qualified Domestic Relations Order must be filed for each individual account. A transfer incident form must be filed to receive proceeds from an individual retirement account. The recipient spouse can choose to receive the payment as a lump sum, roll it over into their own retirement account or allow their portion to remain in the other spouse's account to draw when they retire.
If possible, people should try to refrain from taking their portion of a retirement account as a lump sum payment. It is instead best to roll it over so that the person can provide for their own future retirement needs. Those who are preparing for a divorce in which retirement accounts will be subject to division may benefit by seeking help from a family law attorney in preparing and filing the required documents.