After a Divorce Ruling, What Is a QDRO?

By Kay Lee

A qualified domestic relations order, also known as a QDRO, is a legal document that allows an individual to give another person the right to receive all or part of his retirement benefits. A QDRO is typically the result of the division of marital property after a divorce, since the majority of retirement benefits may have been earned during the marital period and the court may decide that a spouse is entitled to part of those benefits.

A qualified domestic relations order, also known as a QDRO, is a legal document that allows an individual to give another person the right to receive all or part of his retirement benefits. A QDRO is typically the result of the division of marital property after a divorce, since the majority of retirement benefits may have been earned during the marital period and the court may decide that a spouse is entitled to part of those benefits.

QDROs

A QDRO is a judgment, decree or court order that relates to child support, alimony or a divorce settlement under state domestic relations law. Under federal law, QDROs can provide benefits to a spouse, former spouse, child or other dependent of the retirement plan participant. The person receiving a benefit from a QDRO is called an alternate payee. Without a QDRO that is accepted by the retirement plan, the alternate payee will not be able to receive any part of the retirement benefits.

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QDRO Requirements

By law, QDROs must contain the name and address for the alternate payee, the exact name of the retirement plan that will be paying the benefits, the amount (either a dollar figure or percentage of benefits) that should be paid to the alternate payee, and the number of payments or time period covered by the QDRO. QDROs are not allowed to give the alternate payee any benefits that are not available to the participant in the plan. For example, if the participant has not yet reached the retirement age required to receive a benefit under the plan, the alternate payee will not be able to receive a benefit before the participant reaches retirement age.

Obtaining QDRO

To obtain a QDRO, first you will need a judgment, decree or court order stating that you are entitled to all or a portion of your former spouse's retirement benefits. Once you have the court mandate, you may contact the retirement plan for further instructions since many plans have model QDROs to use or specific rules that must be followed. In addition, there are companies devoted to drafting QDROs on your behalf or you may have your divorce attorney draft your QDRO for you. Once drafted, you may submit the QDRO to the retirement plan for approval. Once the QDRO meets the retirement plan’s standards and has been approved, you may then file the document with the court. Benefits will begin to be paid in accordance with the terms of the QDRO.

Tax Implications

The alternate payee will treat the distributions received through the QDRO as if it were her own retirement benefits. This means that the retirement benefits are likely to be treated as income and must be reported on the alternate payee’s income taxes. There are, however, exceptions to this rule. If the alternate payee receives money through a QDRO from a Roth 401(k) plan, the benefits would not be taxable since they were originally contributed to the plan on an after-tax basis. Also, if the QDRO assigns a benefit to a dependent of the plan participant, the plan participant would be responsible for paying taxes on the benefit.

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Can I Postpone an Absolute Divorce Until the QDROs Are Signed by a Judge?

References

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Can a QDRO Be Issued Before a Divorce?

Once the details of a financial resolution in a divorce are final, by agreement or order, the assets are transferred to the appropriate spouse. A Qualified Domestic Relations Order, or QDRO, is used to transfer retirement assets to the non-employee spouse. A QDRO is typically issued after the final decree is entered. However, if state law permits, it may also be entered after a settlement agreement is reached and approved, but prior to finalization of the divorce.

Tips Regarding a Husband's Retirement Benefits in a Divorce

Financial disputes take center stage in many divorces and a court may decide how a couple must divide their assets before parting ways. If a spouse is due retirement benefits, that income may not be payable until well after the divorce is final -- yet the other spouse may have a legal right to a portion of it. Additionally, issues may arise to complicate the process.

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The laws of each state govern the division of property in a divorce. Although many divorces result in a 50/50 division of assets, family circumstances may bring about a different percentage, depending on the judgment of the court. If you have saved money in a 401(k) arrangement with your employer, the court will assign a portion of those assets to your spouse during the proceedings. It's important to follow the proper steps and obtain a valid QDRO to avoid IRS penalties.

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