A qualified domestic relations order (QDRO) provides a portion of a former spouse's retirement benefits to the other spouse in a divorce. A QDRO is usually referenced as part of the divorce agreement, which may outline the amount or portion of the plan benefits the former spouse receives.
Are you wondering why you can't wait until your former spouse retires or until you need the money? If you wait too long to get a QDRO after a divorce, you risk losing these benefits. Talk to a family law attorney about QDRO benefits as part of your divorce proceedings.
Retirement accounts can represent significant assets for a divorcing couple. For workers close to retirement age, retirement accounts can be worth hundreds of thousands of dollars, which retirees can use to enjoy their post-working years. There are several types of retirement plans available to workers, including:
A divorce decree divides a couple's marital assets, savings, property, and liabilities. In some divorce settlements, the retirement account is the largest asset. You and your ex can determine how your community property should be divided on your own, or you can leave it to the family court judge.
When the property includes retirement assets, the retirement account plan administrator needs a QDRO to allow payments to the ex-spouse. There are simple basic requirements for a QDRO. At a minimum, a QDRO in a divorce must provide:
During the marriage, your spouse's plan may have included survivor benefits, which, if the plan participant dies, allows the surviving spouse, children, or other beneficiaries to receive benefits. However, after a divorce, you can lose access to survivor benefits if your ex remarries or designates someone else as the plan's beneficiary.
However, you do not have to wait until your ex retires to get benefits through a QDRO. The QDRO names you as a plan participant, even if you never contributed anything to the retirement plan. The amount of retirement plan benefits can be based on the value accumulated in the plan during the course of the marriage. If you were married before the start of the retirement plan, you may be eligible for half (50%) of the benefits.
If you are dividing an IRA, you may be able to avoid taxation on the division of the IRA by treating the division as a transfer related to your divorce. The transfer could be treated as a rollover, depending on the situation.
In many cases, a QDRO can be included as part of your final divorce decree. If you wait too long to get a QDRO, you may risk losing your benefits or decreasing the amount of benefits you can receive. Divorce attorneys can advise you on the necessary steps to take to preserve your assets. If you delay, you may risk the loss of retirement funds if your ex:
As the former spouse, you may be able to take advantage of tax benefits offered by the retirement plan. Many retirement plans have tax advantages, including tax-free contributions, no withdrawal penalty, tax-free interest income, paying no federal income taxes on withdrawals, and deferred compensation. Even if you were not a direct participant in the plan during the marriage, you may be able to roll over the QDRO benefits tax-free into another qualified plan.
There are a lot of rules and restrictions on retirement benefit plans and dividing assets in a divorce. With a QDRO, after you claim benefits, the retirement plan is not required to increase payments or make any alteration to the benefits. The retirement plan administrators will generally not provide any benefits above and beyond the options, benefits, and features that the plan provides.
Additionally, you should make sure you name the right beneficiaries for your portion of the benefits after claiming the benefits. If you do not update the beneficiaries after a divorce, your former spouse may be able to claim additional survivor benefits. With so much value in a retirement plan, it is important to make sure you are maximizing your benefits and are not at risk of losing out on retirement savings. A qualified attorney can help you make sure you understand all your rights and options.