What Is a QDRO And How Does It Work In a Divorce?

Figuring out the logistics of the divorce process can be daunting for various reasons. While a judge typically determines how assets and debt are divided in the process, retirement plans are not split as easily. Are you considering or already in the midst of the divorce process? If you’re planning on dividing a spouse’s retirement plan, you’ll need a QDRO in place before moving forward. Continue reading to learn more or contact a Morton Divorce Lawyer today for help completing a QDRO for your divorce today.

WHAT IS A QDRO IN A DIVORCE?

A QDRO is a qualified domestic relations order, which is essentially a court order that requires part of a retirement plan to be paid to a dependent in the case of a divorce. QDROs are specifically utilized for qualified plans like 401(k)s. However, QDROs can’t be used for individual retirement accounts (IRAs) because a process called “transfer incident to divorce” must be used instead. QDROs are normally intended to pay for child support, alimony, or marital property rights, and they help increase the efficiency of the division of assets in a divorce.

Furthermore, QDROs must comply with both the Employment Retirement Income Security Act (ERISA) and any prevalent domestic relations laws in your state. The ERISA establishes retirement plans to provide protection both for beneficiaries and participants. The QDRO allows an alternate payee to receive a predefined amount of their former spouse’s retirement plan assets, and it can also provide special benefits to an alternate payee if the participant (spouse who has the retirement plan) passes away.

HOW DO I COMPLETE A QDRO?

The beneficiary spouse will normally contact an attorney to draft a QDRO document, or the retirement plan could have a standardized QDRO form. Either way, the correct documentation is needed to transfer the funds. The document is then sent to the participant’s retirement plan administrator to be approved, and finally, it’s submitted to the court to be put in process. With an experienced lawyer, submitting a QDRO should be simple.

Any assets already promised to another beneficiary are not eligible to be transferred through a QDRO. Only benefits already offered by the retirement plan administrator can be transferred, so no new benefits can be added just for the beneficiary.

WHY IS A QDRO HELPFUL?

QDROs are helpful for divorcing couples because the retirement plan administrator legally can’t split a spouse’s retirement funds without one. They also make the division of assets must more efficient in the divorce process. A QDRO can also be helpful for a participant because they don’t need to worry about an early withdrawal penalty by the IRS, and the funds aren’t taxed.

If you’re going through a divorce, you might be thinking about using a QDRO with your spouse. Butler, Giruado & Meister, P.C. is here provide quality legal counseling. Contact one of our seasoned and compassionate divorce attorneys today!

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