A qualified domestic relations order (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. QDROs get set up during the property division stage of a divorce.
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 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.
QDROs are common in divorces. If you need a QDRO due to the assets present in your divorce, your attorney will help you with the process. Here at Divergent Family Law, our attorneys help with QDROs when they are part of the divorce.
QDROs are something that get set up during a divorce, then take effect a certain time after the divorce. Receiving funds from a QDRO can take anywhere from 2 months to 2 years but they usually pay out within 6-8 months of the divorce’s conclusion.
For those who have already gone through divorce and are looking for help only with a QDRO, Divorce Financial Solutions is a firm that specializes in QDROs.
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. Here is some key tax information about QDROs:
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 include 401(k) plans, 403(b) plans, 457 plans, employee stock ownership plans, and profit-sharing 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, a fixed percentage or amount will be agreed upon to divide
Defined benefit plans include ERISA covered pension plans and cash balance plans.
The value of these accounts is readily available and visible on the monthly statements and growth reports. 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.
A QDRO typically does not apply to IRAs, deferred annuities, or government retirement plans. This is because they are not a qualified Retirment plan under the Internal Revenue Code.
