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What is a qualified domestic relations order?

On Behalf of | Jan 25, 2022 | Divorce

There are several common misconceptions about retirement benefits earned during a marriage. One common misconception is that at a divorce the employee spouse retains the benefit of whatever retirement accumulations are in his or her name. Another common misconception is that the only way to divide retirement benefits accumulated during the marriage at the time of divorce  is to cash in the accounts and pay taxes and penalties. Neither of these is accurate.

Because of the nature of retirement accounts, such accounts will not be in joint names but will be only in the name of the spouse who accumulated the benefits. Nevertheless if those benefits were accumulated during the marriage, they will be marital.

A qualified domestic relations order (QDRO) is the mechanism used to carry out the division of retirement accounts at the time of Divorce.

The QDRO’s role in a divorce

A QDRO is a court order directing the administrators of a retirement account to transfer a portion of the  account holder’s benefits to the former spouse. If the transfer is coming from an account like a 401K, funds from that 401K will be rolled into an IRA in the name of the former spouse. No taxes or early withdrawal penalties will be incurred like there would be if the retirement account was cashed out. If the transfer relates to the division of pension benefits accumulated during the marriage the plan will be directed to pay a portion of those benefits directly to the former spouse at the time that the benefits become payable under the terms of the plan.

A non-qualified plan like an IRA can also be divided in a divorce by way of a tax-free transfer from and I already in the name of one spouse two and I are a in the name of the other spouse.

Divorce does not have to spoil your retirement

Dividing retirement funds can be a significant source of conflict. Before the marriage ended, both parties likely envisioned spending a long, comfortable retirement together, filled with family, travel, and other pleasures of the golden years. Now that the marriage is being dissolved, you might feel that dream is being threatened. But with sound preparation and the right legal strategy, you can still enjoy the retirement you have earned.

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