Profit Sharing Plans
Qualified Domestic Relations Order (QDRO)
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A profit sharing plan is a defined contribution plan funded by employer contributions into an individual account. The benefits will not be taxed until you begin receiving distribution which is generally after you retire or terminate your employment. There are some exceptions but, generally, you will also be subject to a 10% penalty if distributions are taken before age 59 ½. In order to divide a profit sharing retirement plan in the context of a divorce or legal separation, a qualified domestic relations order is required so that the division can be made without creating a taxable event. One must be careful when dividing a profit sharing plan because, generally, the employer’s contributions into the plan will not be made until after the end of the fiscal year and, therefore, the value subject to division under community property laws may not be the value of the account on the date of the termination of the community. It is important that post decree contributions be included to the extent that the contribution was earned during the period of the community. This can be a complicated issue and it is important that you obtain experienced counsel to assist you in this matter. Please contact KTO Law Firm if you need any assistance in this matter.