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Dividing a retirement account in a Louisiana divorce

On Behalf of | Nov 23, 2022 | Divorce, Property Division

Under Louisiana law, almost all types of property acquired by one of the spouses during a marriage is considered community property, owned equally by both spouses. Most married people hardly think about this idea during the marriage, but it becomes a major issue should they later decide to divorce.

In divorce, the parties must divide all the community assets and debts according to Louisiana law. Since the two parties have an equal claim to all community property, this could theoretically mean a 50-50 split, but the reality is usually a long process of negotiation.

Of course, some types of property are much easier to divide than others. Some bank accounts can be easily split between the parties. Even a car or a house can be sold and the proceeds divided between the parties.

It’s much trickier to divide a retirement account.

Why is a retirement account part of the community property?

You may be wondering why you are supposed to divide your retirement account at all. Perhaps your account is in your name only, and was set up by your employer. You may have even had the account before you met your soon-to-be ex.

Still, Louisiana law says that any property acquired during the marriage is community property. This means that the community property includes any value added to your retirement account during the marriage.

Penalty for early withdrawal

You cannot easily make a withdrawal from a retirement account until it has matured. If you do, you may face a penalty from the bank as well as a hefty tax bill. The penalties are so high, they could eat up the value of the account, leaving you and your ex with little in the way of retirement savings.

To avoid this fate, courts can issues something known as a Qualified Domestic Relations Order, or QDRO. This is a type of court order that instructs a financial institution to divide a retirement account according a divorce settlement.

Typically, the QDRO divides a retirement account into two accounts, so that both parties can rely on the funds in the account for their retirements.