A Qualified Domestic Relations Order — commonly called a QDRO (pronounced “quad-row”) is a court order most commonly used when a couple divorces that provides an ex-spouse with some ownership (usually 50%) of the other spouse’s retirement plan. For example, if the husband has $400,000 in his 401(k) account, the QDRO would call for the wife to receive 50% of the account. Instead of a distribution of the $200,000, which would be taxable and likely subject to a 10% penalty, the QDRO allows the division of the retirement account without tax consequences.
Here’s a good tip from Russ Thorton:
When a divorce proceeding starts, you or your attorney can contact your soon-to-be-ex-husband’s retirement plan administrator and let them know that a case is pending. The administrator may be able to lock down the plan to stop your husband from withdrawing the money and hiding it from the court and from you. Usually, you’ll have to make a written request, but a phone call can help you understand the retirement plan’s requirements. This is an important step to make sure that there’s money left for a qualified domestic relations order to distribute to you.
As you work through your divorce case or settlement, you’ll begin to see how the marital estate should be divided and how much of the retirement plan or its future benefits should be yours. When you have a divorce settlement agreement, you and your attorney can draft the qualified domestic relations order. The QDRO gets signed by a court, which gives it legal power. While every state has different divorce laws, qualified domestic relations orders are covered by federal law, so they can be binding anywhere in the country. Once the plan administrator gets a certified copy of the QDRO, she will divide the retirement plan’s assets and benefits in accordance with it.
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Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.