QDROs and the division of retirement funds in a divorce

Dividing your assets during a divorce is often complicated. If you happen to be more well-established in life, there can be myriad accounts and properties that you’ll need to reallocate. One area of your assets that may not immediately come to mind, but is of great importance, is your retirement accounts.

Your retirement funds can be substantial, and in turn, separating them during a divorce can be complex. For a 401(k)—as well as for many other pension plans—what’s called a Qualified Domestic Relations Order (QDRO) must be in place to divide the plan. If you’re beginning divorce proceedings, and separating your retirement accounts seems necessary, it’s prudent to understand the basics of a QDRO.

The purpose of a QDRO

A Qualified Domestic Relations Order is issued by the court to a retirement plan administrator. What the order does is allow a non-employee spouse (alternate payee) to receive a share of a participant’s benefits, without penalty. With a QDRO, the spouse can then withdraw their share and deposit it into their own retirement account. This order can also apply to more than one plan.

A divorce settlement agreement will not always cover a spouse’s rights when it comes to retirement accounts, so a QDRO can be instrumental.

The contents of a QDRO

A QDRO will include some basic information, including:

• The participants and alternate payee’s names and mailing addresses
• The names of the plans that the order applies to
• The percentage or dollar amount that’s going to the alternate payee
• The duration during which the order will apply, as well the number of payments to be made

Other aspects to consider

With QDROs, there are a few other items to keep in mind. For one, you’ll want to complete it before your divorce is final. Having your retirement accounts sorted out will allow you to focus more on dividing your remaining assets. Also, in the event that the employee-spouse dies shortly after the divorce, without a QDRO in place the plan would deem them single, and the ex-spouse would be entitled to nothing.

QDROs can be complicated to draft. You may find it helpful to consult with an experienced divorce attorney for guidance on moving forward with a QDRO. With divorce, as with nearly anything in life, being properly prepared is paramount.