How to Split Retirement Accounts in Divorce: A Complete Guide to QDROs and Working with a CDFA

Watch the 25-minute video conversation above.

Expert CDFA Advice on QDROs, Tax Strategies, and Protecting Your Financial Future

When you're going through a divorce, the last thing you want to deal with is figuring out how to split up retirement accounts, who had what before marriage, what was earned during, and so on. But this is exactly the stuff you need to understand so you don't make expensive mistakes that'll haunt you for decades.

I recently sat down with Certified Divorce Financial Analysts (CDFAs) Josephti Cruz and Kat Holland from Cover Your Assets to talk through everything you need to know about splitting 401(k)s, IRAs, and pensions. And honestly? This conversation was eye-opening. Even after helping thousands of people through divorce prep, I learned things that surprised me.

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Is Everything Just Split 50/50? (Spoiler: Not Necessarily)

Here's what most people think: "Okay, we're getting divorced, so everything gets split down the middle, right?" Well... it depends. When you're working through mediation versus litigation, you'll have more say on what goes to who.

This is what Josephti and Kat kept emphasizing: You have the opportunity to be creative about how you split retirement assets. You're not stuck with some cookie-cutter formula. You can actually structure things in ways that:

• Make the paperwork way easier

• Keep the tax situation fair for both of you

• Create a more equal split than just 50/50 (yes, really—sometimes equal isn't the same as equitable)

  
  

The truth is, you have way more flexibility than you think. The key is understanding what you're working with and getting the right help.

Let's Break Down the Different Types of Retirement Accounts

Okay, so before we can talk about splitting anything, you need to know what you're actually dealing with. People toss around words like "pension" and "401(k)" interchangeably—but they're not the same thing at all.

401(k)s and IRAs: What's the Difference?

First things first: both 401(k)s and IRAs can be pre-tax or post-tax (you'll hear the word "Roth" thrown around for post-tax versions). This matters because a pre-tax account and a Roth account with the same balance? They're not worth the same amount. When you withdraw from a pre-tax account, you're gonna owe taxes. With a Roth, you've already paid the taxes.

So when you're negotiating, you can't just look at the numbers on paper—you have to factor in what those accounts will actually be worth after taxes.

The big distinction:

• 401(k)s are employer-provided (your job sets them up)

• IRAs are something you go get on your own

This matters for how you split them. We'll get to that in a minute.

What About Pensions?

Here's where people get confused. A pension is not the same as a 401(k) or IRA.

A pension pays out a guarenteed income—like a paycheck you'll get in retirement (or now, if you're already retired). A 401(k) or IRA is more like a savings account you withdraw from when you need it.

Both are retirement money, but they work completely differently. And that means they get valued and split differently too.

QDROs: The Document You Need to Actually Split Retirement Accounts

Alright, let's talk about QDROs. It stands for Qualified Domestic Relations Order, which is a very fancy way of saying "the legal document that lets you split retirement accounts without getting hit with penalties and taxes." Here's what you need to know:

You need a QDRO for:

• 401(k)s

• Pensions

• Other employer-provided retirement accounts

You DON'T need a QDRO for:

• IRAs (you can split these with just your divorce decree)

The QDRO basically tells the retirement plan: "Hey, this person is entitled to this much money, so create a separate account for them."

When Should You Actually Do This?

Here's where most people think: "Oh, we'll deal with the QDRO after the divorce is final."

Don't do that.

Yes, QDROs usually get written up after your divorce decree is done. But here's what Josephti and Kat emphasized in our conversation: you can—and should—get your QDRO drafted and approved by the plan administrator before you finalize your divorce.

Why? Because if you wait until after and the plan rejects your QDRO? Now you have to go back to your ex-spouse and potentially start from scratch, "Hey, remember that thing we agreed on? Yeah, the plan says it doesn't work that way. We need to renegotiate."

Nobody wants to reopen financial conversations with their ex after the divorce is done. Trust me on this.

How to Get the QDRO Guidelines (This Is Important)

Every employer's retirement plan has its own specific requirements for QDROs. Like, certain paragraphs that have to be written a certain way. You need to get these guidelines up front.

Here's how:

1. If it's an account through work, whoever has the account goes to their HR department (not to actually file the QDRO—just to find out who handles it)

2. HR will point you to the plan administrator (this is different from HR, and different from something called the "plan sponsor"—don't worry about all that, just remember: plan administrator)

3. Ask the plan administrator for their QDRO guidelines

4. Give those guidelines to whoever is drafting your QDRO

Do this early. Getting all your paperwork done in "lock step" with your divorce will save you so much hassle later.

Let's Talk About Taxes (Because They Matter More Than You Think)

Money equals feelings, right? But money also equals taxes. And taxes can seriously affect your divorce settlement.

Child Tax Credits

Your divorce agreement should say who gets to claim the kids as dependents for taxes. But here's what you need to know: the IRS doesn't ask to see your divorce agreement.

So make sure:

• Your tax preparer knows what you're entitled to claim

• You actually claim it (preparers don't usually ask about your divorce settlement)

• If you have multiple kids, think strategically about who claims whom (PRO TIP! Claim the younger kid—you'll get that credit for more years)

Big News for 2025: SALT Deduction Changes

Okay, this one surprised me in our conversation. The SALT deduction (State and Local Taxes) is jumping from $10,000 to $40,000 in 2025. That's huge, especially if you live in a high-tax state.

And here's the thing: this deduction can be split between you and your spouse in your divorce settlement. So if you're negotiating right now? This is something you want to discuss with your CDFA or attorney.

The House vs. Retirement Accounts: Making Apples-to-Apples Comparisons

One of the most common divorce scenarios: one spouse wants to keep the house, the other wants to keep retirement accounts. Sounds fair, right?

Not so fast.

Consider this real-world example from a divorce Facebook group:

"My ex offered to give me the $500,000 house if I let him keep his $3,500/month pension. Should I take it?"

On the surface, it might seem reasonable. But there's so much more to consider:

Questions to Ask:

1. What is that pension actually worth? A $3,500 monthly pension could be worth over $1 million in present value

2. What's the house's true cost? Will you owe capital gains taxes when you eventually sell?

3. Can you afford the house? Property taxes, insurance, maintenance, and utilities can be crushing if you're moving from dual income to single income

4. What about home equity? Is there a mortgage? How much equity exists?

The 5-5-5 Rule for Financial Decisions

Before accepting any divorce settlement terms, apply the 5x5 rule:

How will this decision affect me in: 5 days? 5 weeks? 5 months? 5 years? 10+ years?

This framework prevents reactive, emotion-driven decisions and encourages long-term financial planning. The goal is avoiding scenarios where you're "hemorrhaging money" a year or two post-divorce because you agreed to terms you couldn't actually afford.

Read more about the 5-5-5 Rule in the post The 5-5-5 Rule: Mastering Divorce Decisions for Long-Term Success

Proper Asset Valuation Is Essential

To negotiate fairly, you must:

• Get current market valuations for all assets (home, cars, investments)

• Calculate present value of pensions and other income streams

• Account for tax implications of different asset types

• Consider liquidity (can you access the money when needed?)

• Evaluate ongoing costs and liabilities

Tax Debt in Divorce: Can a Judge Make Your Ex Pay?

The answer is complicated: The judge CAN order one spouse to pay tax debt, but the IRS doesn't have to honor that order. To the IRS, the community owes the debt, regardless of what your divorce decree says.

What this means:

• If your ex refuses to pay despite the judge's order, you'll need to go back to court to compel payment

• Or you'll be stuck with the debt yourself

• The IRS doesn't care who incurred the debt or what your settlement says

The Innocent Spouse Claim Option

If you didn't know about under-reported income that triggered IRS debt, you may qualify for innocent spouse relief. This allows you to potentially avoid liability for taxes due to your ex-spouse's unreported income.

Who can help:

• Enrolled agents

• CPAs

• Tax attorneys

These professionals can represent you to the IRS and help navigate the innocent spouse claim process.

What Is a CDFA and Why Do You Need One?

CDFA stands for Certified Divorce Financial Analyst—a financial professional specifically trained in the unique financial aspects of divorce.

Why Standard Financial Knowledge Isn't Enough

Even financial professionals who handle money for a living can make mistakes with their own divorces. Why? Because divorce finance is unique from every other type of financial planning.

Divorce involves:

• Tax implications specific to asset transfers

• Complex valuation methodologies

• Obscure regulations around retirement account division

• Negotiation strategies that balance immediate needs with long-term security

• Understanding how different asset types are treated legally

What a CDFA Can Do for You: A CDFA helps you:

1. Understand your rights regarding marital assets

2. Value complex assets like pensions, businesses, and stock options

3. Create creative solutions for asset division

4. Project long-term financial impacts of different settlement scenarios

5. Coordinate with attorneys to ensure financial considerations align with legal strategy

6. Develop post-divorce budgets and financial plans

7. Prepare financial documentation for court or mediation

The Cost of Not Having a CDFA: Without proper financial guidance, people commonly:

• Accept settlements that seem fair but are actually financially unbalanced

• Overlook tax consequences that cost thousands later

• Agree to keep assets they can't afford to maintain

• Miss creative solutions that would benefit both parties

• Make emotional rather than strategic financial decisions

I work directly with CDFAs Josephti Cruz and Kat Holland as part of my Ultimate Divorce Prep Package PLUS. This program combines my comprehensive 8-week divorce coaching with Josephti's expert financial analysis and planning.

Here's how it works: You get my 8-week coaching program, where we tackle everything from getting organized and building your divorce strategy to preparing for negotiations and creating your parenting plan (if applicable). Then Josephti or Kat steps in with their CDFA expertise to review your financial situation, analyze your assets and debts, and help you understand what different settlement options actually mean for your long-term financial security.

Once completed, you'll have everything necessary for a divorce attorney or mediator, be crystal clear on your goals and priorities, understand how your finances will change after divorce and have a solid plan, and become your own best advocate moving forward. There's no better position to be in when you're going into negotiations!

Here's Your Divorce Retirement Accounts Checklist

Before you finalize your divorce, you'll want to make sure you've addressed:

• Identified all retirement accounts (401(k)s, IRAs, pensions, both traditional and Roth)

• Valued all accounts properly, accounting for tax differences between pre-tax and post-tax accounts

• Obtained QDRO guidelines from plan administrators for all applicable accounts

• Drafted and pre-approved QDROs before finalizing divorce

• Considered creative asset division strategies that go beyond simple 50/50 splits

• Evaluated tax implications including child tax credits and SALT deductions

• Applied the 5x5 rule to major financial decisions

• Compared assets on an apples-to-apples basis, including long-term costs and tax consequences

• Addressed any tax debt and explored innocent spouse relief if applicable

• Consulted with a CDFA to understand your full range of options

"Working with Alex gave me exactly what I needed. She clearly explained the entire process and understood the emotional journey in ways my attorney couldn't, saving me from expensive billable hours. Alex gave me the clarity and confidence to move forward while saving both time and money." - Anna, Coaching Client

Don't Navigate Divorce Finance Alone

The financial decisions you make during divorce will impact you for decades. While it's tempting to rush through the process to end an emotionally difficult chapter, taking time to understand your options and work with qualified professionals can literally save you hundreds of thousands of dollars over your lifetime.

Think of it as having both the emotional/strategic support AND the financial firepower you need to make smart decisions.

Schedule a free 15-minute call with me! We'll talk through where you are, what you need, and how I can help.

Remember: the goal isn't just to get divorced. It's to come out of this in the strongest possible financial position to build your next chapter.