You and your spouse must equitably divide all your marital property, including retirement plans. Divorcing spouses may overlook assets they still hold jointly despite the divorce, which can have adverse financial consequences, especially when those are your retirement assets. You can protect your retirement assets through a Qualified Domestic Relations Order (QDRO).
What is a Qualified Domestic Relations Order (QDRO)?
Federal law protects retirement plans from forced liquidation and bankruptcy, but not necessarily a divorce decree. A QDRO is a court order that permits a spouse who is not contributing to the retirement plan to receive all or a portion of the payouts of the qualified retirement plan without tax consequences. The QDRO is an agreement between the two spouses, meaning both you and your former spouse can protect your interests regardless of who owns the account.
If you are the contributing spouse, you can have more control over how much your former spouse will receive from your retirement fund. You could use a QDRO to provide support payments after a divorce, such as alimony or child support. A QDRO can also allow you to divide the retirement assets you and your spouse accumulated during your marriage.
The language you use to create a QDRO should be specific
You must include your marriage date and divorce date in the QDRO so that it can define what your spouse is entitled to receive depending on the length of your marriage. To ensure the QDRO will protect your interests, you must provide explicit instructions. The amount that you and your spouse agreed on should be specific. Otherwise, your spouse may receive much more than what you initially thought they would from your retirement plan.
A divorce can leave you in financial ruin if you do not take the proper steps to safeguard your rights to certain assets.