In a Wisconsin divorce, the part of a 401(k), pension or IRA that was built up during the marriage is generally marital property, and the court starts from a presumption that it is divided equally, no matter whose name is on the account. Employer plans are divided with a court order called a Qualified Domestic Relations Order (QDRO), and IRAs with a transfer incident to divorce. Done this way, the transfer itself is not taxed. Done wrong, or left unfinished after the divorce, it can cost you taxes, penalties or your share.
This guide explains what part of a retirement account is divided, how each type of account is handled, how a QDRO works and who is responsible for filing it, the tax rules to watch, and how to protect your share. For every other asset, see our guide to how property gets divided in a Wisconsin divorce.
How Does Wisconsin Law Treat Retirement Accounts in Divorce?
Are Retirement Accounts Marital Property?
Wisconsin is a marital property state. Property acquired during the marriage is presumed to belong to both spouses, whoever’s name is on the account. That includes 401(k) plans, 403(b) and 457 plans, IRAs, pensions, the federal Thrift Savings Plan and other employer retirement benefits. Employer matching contributions made during the marriage are generally marital as well.
Contributions made before the marriage are generally the account owner’s, but only if they can be traced. A premarital balance that has been mixed with marital money can end up being divided. The other end of the timeline matters too: which date the court uses to cut off the marital portion, and which date is used to value the account, can change the numbers a great deal, so your settlement or judgment should state both. Our guide to marital property vs. separate property explains the difference, and tracing separate property explains how premarital money is proved.
What Is the Presumption for Dividing Retirement Accounts?
Wisconsin law presumes that marital property, including retirement accounts, should be divided equally between spouses. Courts start from an equal share of the retirement benefits built up during the marriage. However, courts can deviate from equal division if circumstances warrant different treatment.
The presumption applies even if only one spouse worked outside the home. Wisconsin treats homemaking and child care as contributions to the marriage alongside paid work.
Can You Agree to a Different Split?
Yes. Spouses can agree to any division they find acceptable, and many do. One spouse might keep all of their retirement accounts while the other keeps the equity in the house. Whether a trade like that is fair depends on taxes, liquidity and each spouse’s age and plans, which is covered below under offset agreements. Mediation is often a good place to work out these trades.
What Types of Retirement Accounts Are Divided, and How?
401(k), 403(b) and Similar Plans
These are employer plans with an account balance. They are divided with a QDRO that tells the plan administrator to pay part of the account to the non-employee spouse, called the alternate payee. The marital portion is the value built up during the marriage, including investment growth on marital contributions. If the account existed before the wedding, the growth has to be split between the premarital and marital portions, which takes statements from both ends of the marriage.
The QDRO can award either a percentage or a fixed dollar amount. A percentage moves with the market until the account is actually divided, so neither spouse bears the whole gain or loss. A fixed dollar amount does not, which can leave one spouse better or worse off than intended if the market moves before the transfer. The order should say which approach applies and whether gains and losses are included.
Traditional and Roth IRAs
IRAs do not use a QDRO. They are divided by a transfer incident to divorce under Internal Revenue Code Section 408(d)(6): funds move directly from one spouse’s IRA to an IRA in the other spouse’s name under the divorce judgment or settlement. For this to be tax-free:
- The judgment or settlement agreement should specifically provide for the transfer.
- The money should move directly between IRA custodians, not be paid out in cash.
- The receiving spouse needs an IRA in their own name to receive it.
A Roth IRA keeps its Roth character after the transfer, so qualified withdrawals remain tax-free. How the Roth age and five-year holding rules apply to the receiving spouse is a question to confirm with a tax adviser before relying on an early withdrawal.
Pensions (Defined Benefit Plans)
A pension promises a monthly payment at retirement based on service and salary, rather than holding an account balance. There are two main ways to divide one:
- Deferred distribution: a QDRO gives the former spouse a share of each payment when the employee spouse retires. This keeps the pension intact but ties the former spouse’s income to the employee’s retirement decisions and to both of your lifespans.
- Immediate offset: the present value of the marital portion is calculated now, using actuarial assumptions about retirement age, life expectancy and interest rates, and the other spouse receives other assets of equal value. This gives a clean break but depends on getting the valuation right.
Military and Federal Government Retirement
Military retired pay is divided under the Uniformed Services Former Spouses Protection Act, and federal civilian benefits under the Civil Service Retirement System or Federal Employees Retirement System. Both can be divided in a Wisconsin divorce, but each uses its own type of order and specific language.
The “10/10 rule” for military pensions allows direct payment to former spouses only if the marriage lasted at least 10 years overlapping with 10 years of military service. However, former spouses married less than 10 years can still receive a portion of military pensions; they just receive payment from the service member rather than directly from the Defense Finance and Accounting Service.
Wisconsin Retirement System (WRS) Pensions
WRS covers state and local government employees, including teachers, police officers and many other public workers. It is a government plan, not an ERISA plan, and it is divided with its own court order under Wisconsin’s retirement statutes, reviewed by the Department of Employee Trust Funds (ETF). ETF publishes the order form it accepts and rejects altered or incomplete forms. Under that order, ETF values the participant’s WRS benefits as of the date the marriage ended and divides them using the share awarded to the former spouse. The order should also be coordinated with how survivor and death benefits are handled.
Deferred Compensation, Stock Options and Executive Plans
Stock options, restricted stock units, nonqualified deferred compensation and supplemental executive retirement plans (SERPs) earned through work during the marriage are generally subject to division, even if they have not vested yet. Nonqualified plans and SERPs are not covered by ERISA and cannot be divided with a QDRO, so the settlement itself must spell out how and when the other spouse is paid, with attention to taxes. Our guide on stock options in a Wisconsin divorce covers equity compensation in more detail.
Small Business Plans
SEP-IRAs and SIMPLE IRAs are divided like other IRAs; solo 401(k)s like other 401(k)s. Both can be tangled up with the business itself. See business ownership in divorce.
What Is a QDRO and How Does It Work?
What Does QDRO Stand For?
QDRO stands for Qualified Domestic Relations Order. It is a court order that directs a retirement plan to pay part of a participant’s benefits to someone else, usually a former spouse, as part of the property division. Private employer plans are governed by a federal law, the Employee Retirement Income Security Act (ERISA), which generally bars a plan from paying anyone but the participant unless it receives an order that qualifies.
That is why the divorce judgment alone is not enough. Even if the judgment awards you half of your spouse’s 401(k), the plan cannot pay you until it has an order it has accepted as a QDRO.
What Must a QDRO Include?
Under federal law, the order must clearly state the name and last known mailing address of the participant and each alternate payee, the amount or percentage of benefits to be paid to the alternate payee (or how it is calculated), the number of payments or period it covers, and each plan it applies to. It cannot require the plan to provide a type of benefit or payment option the plan does not offer, or to pay more than the plan would otherwise pay.
A well-drafted QDRO also addresses:
- Survivor benefits: if the employee spouse dies before retirement, a poorly drafted order may leave the former spouse with nothing. For pensions, the order should say whether the former spouse is treated as the surviving spouse for any pre-retirement survivor annuity.
- Cost-of-living adjustments: whether the former spouse’s share of a pension receives later increases.
- Early retirement: whether the former spouse can start payments once the employee reaches the plan’s earliest retirement age, even if the employee keeps working.
- Gains, losses and loans: whether the share moves with the market until it is separated, and how an outstanding plan loan is treated.
- Death of the alternate payee: whether the share reverts to the participant or passes to the alternate payee’s beneficiaries.
How Is a QDRO Prepared and Approved?
- Get the plan’s rules: request the plan’s written QDRO procedures, summary plan description and any model order. Every plan must have written procedures, and many publish a model QDRO.
- Write precise settlement terms: the settlement or judgment should identify each account and describe the division precisely enough to translate directly into the order. “Wife receives her fair share” is not enough.
- Draft the order to match both the judgment and the plan’s rules.
- Pre-approval: many plans will review a draft before it goes to the judge, which catches problems early.
- Court signature: the order is submitted to the court and signed.
- Final qualification: the signed order goes to the plan administrator, who decides whether it is a QDRO and notifies both of you in writing.
Attorney hourly rates can range up to $500. What a QDRO costs to prepare depends on the plan and how complex the order is, so ask for an estimate early.
Who Is Responsible for Filing a QDRO?
No single person is automatically responsible. Who prepares the QDRO and submits it to the court and the plan is usually decided in the divorce itself: the marital settlement agreement or the judgment typically assigns the job to one spouse or that spouse’s attorney, sets how the cost is shared, and sometimes sets a deadline. If your judgment is silent, raise it with your divorce attorney right away rather than assuming the other side will do it.
In practice, the spouse who is receiving part of the account has the most to lose from delay, so that spouse’s attorney often drafts the order, or the parties agree to hire a QDRO specialist. The participant still has a role: plans usually need the participant’s account information, and the employer may need to report service and earnings.
Three parties have to sign off before anyone is paid:
- You and your spouse (or your attorneys) prepare the order and agree on its terms.
- The court signs it. A court can refuse to sign an order that goes beyond what the judgment authorized.
- The plan administrator decides whether the order qualifies under federal law and the plan’s rules. The plan must tell both of you when it receives the order, give you a copy of its procedures, and decide within a reasonable time. If it rejects the order, it should explain why, and you can correct and resubmit.
For a WRS pension, the process is similar but the order goes to ETF on ETF’s own form, and ETF’s form states that it is the parties’ responsibility to submit it as soon as possible and before either of you dies.
What Happens If Nobody Files the QDRO?
Delay is where people lose money. Until the plan has an accepted order, the account is legally still the participant’s. In the meantime:
- The participant may take a loan, a hardship withdrawal or a distribution, or roll the money to another plan, which makes the order harder to carry out.
- The participant may retire and start benefits in a form that limits what the former spouse can receive, or remarry, which can give a new spouse survivor rights in a pension.
- If the participant dies, the plan may pay the death benefit to the named beneficiary. Federal rules allow an order to qualify even after the participant’s death, but once the plan has paid someone else, recovering your share can be difficult or impossible.
- Years later, records are harder to find, plans merge or change administrators, and the judgment may not describe the account clearly enough to draft from.
A QDRO can be prepared after the judgment is entered, and often is, but the safest approach is to draft it as soon as terms are agreed, get plan pre-approval before the divorce is final, and confirm in writing that the plan has accepted it. Put it at the top of your post-divorce checklist.
Why Do Plan Administrators Reject QDROs?
- Using the wrong plan name or account number
- Failing to identify the parties as the plan requires
- Awarding a benefit or payment option the plan does not offer, or an amount it cannot pay
- Terms that conflict with the divorce judgment
- Missing plan-specific provisions or outdated model language
While a plan is deciding whether an order qualifies, federal law requires it to set aside the amounts that would be payable to the alternate payee, for a limited period. If the order is rejected or the question is not resolved in time, that protection can end, and the participant may be able to access funds that were meant to be shared.
What Happens After a QDRO Is Approved?
The alternate payee’s share is separated into its own account or benefit. Depending on the plan and the order, the alternate payee can leave the money in the plan, roll it into their own IRA or employer plan to keep it tax-deferred, or take a cash distribution and pay income tax on it.
How Is the Marital Portion Calculated?
What Is the Coverture Fraction?
For pensions, courts commonly use the coverture fraction, also called the time rule. The numerator is the time benefits accrued during the marriage; the denominator is the total time benefits accrued.
In practice, the longer the share of your working years that fell inside the marriage, the larger the marital portion, and the non-employee spouse shares only in that portion.
Premarital Balances and Investment Growth
For account-based plans, the analysis traces contributions over time and splits investment gains and losses between the premarital and marital portions. Separating growth on premarital money from growth on marital contributions takes detailed records, especially in accounts with ongoing contributions and market swings.
If an account lost value, both spouses generally share the loss. If one spouse deliberately drained or wasted an account, the court can take that into account in the overall division.
What Tax Rules Apply When Dividing Retirement Accounts?
Is Dividing a Retirement Account a Taxable Event?
Not when it is done correctly. A transfer under a QDRO, or an IRA transfer incident to divorce, does not trigger tax at the time of the transfer. Tax is owed later, when money is withdrawn, by the person who withdraws it. For more on the tax side of divorce generally, see divorce and taxes in Wisconsin.
Don’t Cash Out to “Split It Up”
The most expensive mistake is for the account holder to withdraw money and hand the other spouse a check. The IRS treats the whole withdrawal as the account holder’s taxable income, and if the account holder is under 59½ an additional early withdrawal tax usually applies too. The receiving spouse gets less, and the damage cannot be undone once the money is out. Use a QDRO or an IRA transfer instead.
The QDRO Early Withdrawal Exception
A distribution paid to an alternate payee directly from an employer plan under a QDRO is not subject to the early withdrawal penalty that normally applies before retirement age, though income tax still applies. This exception does not apply to IRAs. If you roll your share into an IRA first and then withdraw it early, the usual early withdrawal rules generally apply. If you think you will need part of the money soon after the divorce, decide that before you roll everything over.
Rollovers
If you roll your share into your own IRA or employer plan, a direct trustee-to-trustee rollover is the safest route. If the plan pays the money to you instead, the plan is generally required to withhold income tax, and you have a limited window to complete the rollover yourself or the amount becomes taxable.
Different Accounts, Different After-Tax Value
Traditional 401(k)s, IRAs and pensions hold pre-tax money, so every dollar is taxed when withdrawn. Qualified Roth withdrawals are tax-free. Home equity and cash have usually already been taxed. A dollar in each is not worth the same, which matters most when you trade one asset for another.
Should You Consult a Tax Professional?
With significant retirement assets, yes. A tax adviser or divorce financial analyst can compare the after-tax value of different settlement options, and your attorney makes sure the judgment and orders carry them out.
How Do You Protect Your Retirement Share?
Find and Document Every Account
Gather statements for every retirement account either spouse holds, including 401(k)s, 403(b)s, IRAs, pensions, deferred compensation and military or government benefits. Collect statements showing the balance on the date of marriage, keep records of premarital contributions, and request the summary plan description for each employer plan. If you suspect hidden or undervalued accounts, formal discovery can uncover them; see divorce financial discovery in Wisconsin. Wisconsin courts can sanction a spouse who hides marital assets and may award a larger share of the estate to the other spouse.
Don’t Move Retirement Money While the Case Is Pending
Once a Wisconsin divorce is filed (and, for the other spouse, once they are served), both spouses are prohibited by statute from transferring, concealing or otherwise disposing of property without the other’s consent or a court order, except in the usual course of business, for necessities, or to pay reasonable costs of the case. Cashing out, borrowing against or rolling over a retirement account during the case can violate that rule and lead to contempt and a less favorable division. If you think your spouse is about to drain an account, talk to your attorney about a court order. Update beneficiary designations after the divorce is final, not during the case without your attorney’s advice.
Consider an Offset
Offset agreements allow one spouse to keep their entire retirement account in exchange for the other spouse receiving equivalent value in other assets. They work well when both prefer to keep their own accounts, when a QDRO would be complicated, or when other assets can balance the values. Make sure the values are truly equal after accounting for taxes, liquidity and future growth, which may require an appraisal of the home.
Minimize QDRO Costs and Delays
Contact plan administrators early for plan documents and model QDROs, use an attorney familiar with QDROs, seek pre-approval before the divorce is final, and allow adequate time for the QDRO process (often 2-4 months).
Plan Ahead With a Prenup or Postnup
If you are not married yet, a prenuptial agreement can say whether premarital balances and contributions made during the marriage stay separate. Married couples can do the same in a postnuptial agreement.
Special Situations
Gray Divorce
Divorce after 50 leaves less time to rebuild savings and raises questions about when to start benefits and how Social Security fits in. An unequal division of retirement assets sometimes makes sense so both spouses can retire with enough.
Your Spouse Hasn’t Retired Yet
A pension’s final value depends on future service and salary. A QDRO can set a formula for the marital share that applies when the employee retires, or the pension can be valued now and offset.
Frequently Asked Questions
Can I keep my 401k if I agree to other concessions?
Yes, you can negotiate to keep your entire retirement account in exchange for your spouse receiving equivalent value in other assets. For example, one spouse might keep the 401(k) while the other keeps more of the home equity. However, retirement money is taxed when withdrawn and home equity may not be, and retirement funds are harder to reach. Work with your attorney to make sure the trade is fair after taxes.
Does my spouse get half of my retirement account even though I earned it?
Generally, your spouse shares in the part built up during the marriage, whoever earned it, because Wisconsin treats homemaking and child care as contributions to the marriage. Traceable premarital amounts are generally yours. Courts can depart from an equal split in some cases, and spouses can agree to a different one.
Do I have to wait until my spouse retires to receive my share of their pension?
Not necessarily. The QDRO decides when you are paid. Some orders let the alternate payee start when the employee reaches the plan’s earliest retirement age, even if the employee keeps working; others wait until the employee actually retires. If retirement is many years away, an offset may be more attractive.
Can my ex take loans or withdrawals from the account before I get my share?
Once the plan has accepted the QDRO, your portion is separated and protected. Before then, the participant may still have access. A judgment can prohibit loans and distributions until the QDRO is done, but the best protection is finishing the QDRO quickly.
What if we have multiple retirement accounts?
You can split each account, assign whole accounts to each spouse, or trade accounts for other property. Weigh total values, tax treatment, each spouse’s age and the cost of preparing several QDROs.
What happens if my spouse retires, changes jobs, or dies before the QDRO is finalized?
Each can put your share at risk. After a job change, the QDRO must go to whichever plan holds the money when it is submitted, so a rollover complicates things. If your spouse retires first, the plan may already be paying in a form that limits your options. If your spouse dies, the plan may pay the named beneficiary before your order arrives. Start the QDRO as soon as terms are agreed.
Can a QDRO be prepared or changed after the divorce is final?
Yes. A QDRO can be prepared after the judgment, and federal rules say an order does not fail to qualify just because of when it is issued. But waiting adds risk, and a court can refuse to sign an order that goes beyond the judgment. Changing an approved QDRO is possible but difficult, and is usually done only to fix an error or reflect a court-ordered change.
