The Federal government wants everyone to
save money for old age, and so makes it easy
for people to put money away through a wide
variety of tax–deferred schemes – among
others, defined benefit pensions, 401(k)s for
workers in private employment, 403(b) plans
for employees of non-profits, and IRAs for those
who set up their own plans. The general idea is
that taxpayers can defer their obligation to pay
income tax on allowable contributions to retirement
plans until they retire (when their tax rate
will presumably be lower) and then pay tax on
any deferred amounts and on the earnings on
those saved amounts or on pensions, as they
receive the income. In Massachusetts, retirement
benefits are usually treated as marital
assets and are divided as part of the marital
estate on divorce.
The Feds also make it very hard for people to
take money out of retirement plans before they
retire (or at least, reach age 59-1/2). ERISA
(§206(d), 29 USC §1056(d)(1) and its regulations
(26 C.F.R. §1.401(a)-13(b) and the Internal
Revenue Code (26 USC §401(a)(13)) forbid
assignment, anticipation, alienation, attachment,
garnishment, levy, execution or other
legal or equitable processes to transfer taxqualified
assets. Having forbidden alienation
in most situations, the government has also
created an exception - a special “tool” called a
Qualified Domestic Relations Order (QDRO) that
allows divorcing parties to transfer tax-qualified
retirement assets from one party to the other.
Massachusetts law has parallel restrictions on
alienation of retirement plans and similar exceptions
for court-ordered transfers on divorce
(see, M.G.L. c. 235, Section 35A; M.G. L. c. 32,
§19).
Read more in the Fall 2011 edition of the Family Law Section newsletter.