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What is a QDRO? How Divorce Affects Retirement

If you are filing for divorce or facing property division, you may have heard of a QDRO. If you have complex assets, including retirement accounts, there are specific legal processes and documents that must be completed to ensure that both parties are protected.
A Qualified Domestic Relations Order (QDRO) directs your pension plan administrator to give a portion of it to your ex-spouse after the divorce is final. 
Retirement (Photo Credit)

The following is a common scenario involving the QDRO:

  • A settlement agreement states that retirement assets will be equally divided between the husband and wife.
  • Three months later with a QDRO in hand, the couple finds out that the 401(k) has gone down in value and the non-qualified pension plan can’t be divided.
  • At this point, it’s necessary to determine the plan’s official division date and whether or not equivalent assets, temporary benefits, or cost of living adjustments in the plan were considered in the divorce decree.
This was an example of a common problem that arises because QDROs have only been around since 1984 and there is still confusion among some family law attorneys regarding splitting retirement plans.
Because QDROs can be complicated, it’s probably wise to consult an attorney experienced in dealing with them. But here is some basic information about QDROs:

What Qualifies as a QDRO? In general, a QDRO is a court-issued judgment, order, or decree that formally approves a property-settlement agreement that involves a retirement plan. 

What Must be Included in the Order? A QDRO must contain the following information:

  • The name and last known mailing address of the participant, and each alternate payee;
  • The name of each plan to which the order applies;
  • The amount or percentage, or method for calculating the amount or percentage, to be paid to the alternate payee;
  • The number of payments, or time period, covered by the QDRO.
How Does QDRO Work? The order will describe how the assets will be divided. The forms can be filled out by participants, but there are very specific legal requirements, so an attorney can be helpful to answer any questions.

Are QDROs Required During Divorce? Yes, a QDRO is required for any retirement plan covered by ERISA, the Employee Retirement Income Security Act. 

Does a QDRO Need Approval? Yes, the QDRO must be approved by an administrator and it must meet certain requirements. 

Are There Early-withdrawal Penalties? No, QDRO transfers from a retirement account do not incur any early-withdrawal penalties

Legal updates provided by the Orange County and Riverside Law firm of Don Ho, LLP.
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