Many couples might not hear the abbreviation QDRO until they’re in a divorce court. QDRO – Qualified Domestic Relations Order – refers to how a judge will split different types of retirement plans in a divorce.
QDROs allow the court to split retirement accounts such as 401(k)s equally between the couple. However, some retirements will be negatively impacted by a QDRO if it’s imposed.
When is a QDRO used?
When you marry, most of your retirement accounts are shared or considered marital property. Retirement accounts can be difficult to split, especially in employer-provided plans. So a QDRO is used on different types of retirement plans to ensure it can be split equally in a divorce, with examples being:
- 401(k) plan
- 404(b) plan
- 457 plan
- Employee stock ownership plans
- Defined benefit plan
How is a QDRO used?
A QDRO allows the money to be moved from one retirement account to the other, without any taxes until the money is paid out. This way, it’s still considered a retirement asset – but it’s distributed fairly to each spouse when the time comes.
Filing a QDRO can help keep things amicable between you and your ex-spouse, help make sure that your children are taken care of, and reduce tax problems at a later time. In addition, a QDRO is just fair – especially if one spouse doesn’t have a retirement plan.
Who needs a QDRO?
The spouse who will be receiving the QDRO benefits is responsible for filing the motion for a QDRO. There are plenty of times when you want to file a QDRO, such as:
- If you’ve been the primary caregiver to your children
- If you’ve been unable to work due to your spouse’s job
- If you don’t have a retirement account of your own due to depending on your spouses
Many people forget about retirement plans or assets in the divorce until it’s too late. It’s important to discuss all of your options ahead of the divorce. Since QDROs can be complicated, it’s important to learn all about your retirement options and how they work ahead of filing.