Qualified Domestic Relations Order (QDRO)
Key Takeaways
- A qualified domestic relations order (QDRO) is a court order that requires retirement plans to pay out retirement benefits to an alternate payee.
- Divorcing couples can use a QDRO to divide up the participant’s retirement plan assets.
- A divorcing spouse can rollover payments from a QDRO to avoid early withdrawal penalties and additional taxes.
When getting a divorce, you and your ex have to split up your property so that you each get your share. Property division can include real estate, vehicles, art, and other valuables. You also have to divide up your financial assets, including bank accounts.
Retirement accounts can be harder to divide — they’re only in one person’s name. You may need to get a court order to give your ex-spouse property rights to your retirement plan. This legal document is a qualified domestic relations order (QDRO).
Divorce law depends on where you live. A local lawyer can explain the process for sharing your ex-spouse’s retirement benefits. If you have questions about your property rights in a divorce, talk to a divorce attorney about a QDRO.
What Is a QDRO?
A qualified domestic relations order (QDRO) is a court order requiring a qualified retirement plan to pay out retirement benefits to an alternate payee. In family law cases, a QDRO can make payments for child support, alimony, or marital property division.
In a divorce, the alternate payee is a former spouse who gets a portion of the other spouse’s retirement or pension plan benefits. A QDRO is usually referenced within the divorce settlement agreement. The QDRO can be part of the divorce decree or a separate judgment.
Under the Employee Retirement Income Security Act (ERISA), a QDRO must contain certain information. This includes:
- The name and mailing address of the plan participant and alternate payees
- The name of each plan involved
- The dollar amount or percentage of benefit payments
- The number of payments, installments, or the length of time the alternate payee will receive money
Do You Need a QDRO for All Retirement Accounts?
Several types of retirement plans fall under ERISA and may need a QDRO. These include defined benefit plans and defined contribution plans, such as:
- Pension plans
- 401(k) plans
- 403(b) plans
- Employee stock ownership plans (ESOPs)
- Profit sharing plans
- Stock bonus plans
Not all retirement accounts will require a QDRO. For example, individual retirement accounts (IRA) or Roth IRAs don’t fall under ERISA. Non-qualifying retirement accounts do not require a QDRO. These and other retirement assets can be distributed along with other assets in a divorce settlement.
You can avoid using QDROs even when you have retirement accounts. When coming up with a divorce settlement, you and your spouse can divide your property without using retirement benefits. For example, you could pay more from a shared bank account in exchange for keeping your full retirement benefits.
How Does a QDRO Work?
As part of the division of retirement assets, QDROs offer many benefits that may protect you. QDROs comply with existing retirement plan rules regarding future payments to former spouses. The plan administrator may reject a domestic relations order if it does not comply with your plan’s rules.
Another benefit of a QDRO is that it may save you from early withdrawal penalties. The QDRO allows you to withdraw early from a 401(k) or other retirement plans without paying a significant tax penalty to the Internal Revenue Service (IRS).
QDROs also protect you or your former spouse in the event of death. If the spouse participating in the retirement program dies after the divorce and there’s no QDRO, the other may not get any part of their benefits.
What Should You Do if You Have a QDRO?
If you’re not retired and still working, you may want to use the QDRO asset distribution to add to your own retirement benefits if you are the alternate payee. You may be able to rollover part or all of the distribution into your own qualifying retirement account to avoid mandatory withholding taxes.
How Can a Divorce Attorney Help With a QDRO?
Defined benefit plans under ERISA may need a court judgment or order to distribute benefits to an alternate payee spouse. A divorce attorney can help you determine whether you need a QDRO and which retirement accounts apply.
During divorce proceedings, your lawyer can explain your legal options. They can represent you in court, in mediation, or in settlement negotiations to put you in a strong position to secure your fair share of retirement benefits. Contact a local divorce attorney for questions about QDROs in your divorce.
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