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< Property Division / QDRO

Health Insurance Coverage for Legal Separation and DIvorce in WI

A QDRO is defined by the IRS as “a judgment, decree, or order for a retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child or other dependent of a participant.” If the assets in your divorce include certain types of retirement accounts, such as a pension or a 401(k), then you may need a qualified domestic relations order (QDRO) to divide those assets. A QDRO grants the recipient a predetermined amount of their spouse’s retirement assets. It must be compliant with the Employee Retirement Income Security Act (ERISA) and the state’s domestic relations laws.

Tax Implications of a QDRO

A QDRO transfers funds to a former spouse without any tax consequence, as long as the transfer is done 'incident' to, or because of the divorce and is rolled over into another retirement account.
Note:
  • If the former spouse does not transfer the funds into a retirement account, the funds become taxable.
  • The former spouse who recieve distributions is responsible for reporting beenfits & paying income tax as if he or she were the plan participant.
  • If paid to a child or other dependent, the QDRO distribution is taxed to the plan participant.
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QDRO-Eligible Retirement Plans

There are two common categories of retirement plans that can be divided with a QDRO: defined contribution plans and defined benefit plans.

Defined Contribution Plans Defined Benefit Plans
401(k) plans, 403(b) plans, 457 plans, Employee stock ownership plans, Profit-sharing plans ERISA covered pension plans, Cash balance plans
The value of these accounts is readily available and visible on the monthly statements and growth reports. The value of these accounts is more difficult to determine because the value is estimated based on varying factors over time.
With a QDRO, a fixed percentage or amount will be agreed upon to divide With a QDRO, the actual amount to divide is not known and a percentage is agreed upon instead. Once the spouse with the pension retires, payments to the ex-spouse will begin according to the previously agreed-upon percentage.
Defined Contribution Plans
401(k) plans, 403(b) plans, 457 plans, Employee stock ownership plans, Profit-sharing plans
The value of these accounts is readily available and visible on the monthly statements and growth reports.
With a QDRO, a fixed percentage or amount will be agreed upon to divide
Defined Benefit Plans
ERISA covered pension plans, Cash balance plans
The value of these accounts is more difficult to determine because the value is estimated based on varying factors over time.
With a QDRO, the actual amount to divide is not known and a percentage is agreed upon instead. Once the spouse with the pension retires, payments to the ex-spouse will begin according to the previously agreed-upon percentage.

Non-QDRO-Eligible Assets

A QDRO typically does not apply to IRAs, deferred annuities, or government retirement plans.

QDRO Timeline in a Divorce

Receiving funds from a QDRO can take anywhere from 2 months to 2 years, and usually occurs within 6-8 months.

Dividing assets requires meticulous attention to detail. Our team at Divergent Law is ready to help you protect your rights and maximize your benefits. Call us today.

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