Can Your Retirement Funds Be Used to Satisfy Child Support or Alimony Obligations?
Many Floridians mistakenly believe that no one can touch their retirement funds to satisfy child support or alimony obligations. However, that is not entirely true. Not all retirements funds are “untouchable” if you have unpaid spousal or child support amounts.
It is a common misconception that creditors and your former spouse cannot touch the funds in your retirement plan. In reality, creditors can access your retirement funds with a judgment.
In fact, when it comes to accessing the payor’s retirement plan to collect unpaid alimony or child support amounts, a Qualified Domestic Relations Order (QDRO) is not always necessary for this purpose.
So, does it mean that none of your retirement plans are protected by federal law? Not really, as not all plans are subject to QDRO. There is a unique set of rules for each type of retirement plan.
Which Retirement Plans Are Not Protected from Creditors?
QDRO was established by ERISA statutes. ERISA is defined as the Employee Retirement Income Security Act, which passed in 1974. Such plans as 401(k) plans, deferred compensation plans set by employers, HRA accounts, and profit-sharing are covered by ERISA. Disability and life plans are also covered to some extent.
However, ERISA does not cover any plans set up by government entities or churches. Also, individual plans are not covered under ERISA (e.g., individual IRA plans or SEPs), though “simple” IRA plans may be protected under ERISA if they are employer-sponsored plans.
Depending upon state laws, IRA plans may be protected from creditors in a bankruptcy case. Any types of accounts that follow the requirements of ERISA are generally protected from creditors.
Can Your Retirement Plan Be Used to Satisfy Child Support or Alimony Obligations?
Under ERISA law, it is possible to access ERISA-protected funds to satisfy a judgment for back child support and alimony payments. However, in some cases, such a judgment may require the QDRO to issue against retirement funds. The order may permit those retirement funds to be removed to satisfy the debt owed. Meaning: These funds can be accessed without having to wait for the wage earner to reach retirement age.
If you have a non-ERISA individual IRA, you may get protection from having your funds accessed to satisfy child support or alimony obligations by filing for bankruptcy. Under federal law, there are no protections for IRA funds other than in the case of bankruptcy. The law protects up to $1 million of your IRA savings after you file for bankruptcy.
Thus, if the payor spouse does not pay child support, alimony, or other financial obligations following a divorce, the unpaid funds can be taken directly from that spouse’s retirement plan. Essentially, a QDRO would be a lien on the payor spouse’s retirement accounts.
There is also a second option to ensure alimony payments. Through the use of an Alimony and Maintenance Trust, the payor spouse can be ordered to transfer assets into a trust. Then, the funds generated by those trusts will be used to pay alimony for the duration of time specified in the divorce agreement.
Speak with our Orlando divorce attorneys from the Law Offices of Steve W. Marsee to determine how a spouse receiving alimony or child support can force the payor spouse to satisfy his or her post-divorce financial obligations. Call at 407-521-7171 to discuss your case.