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What is a QDRO?

On Behalf of | Jan 26, 2024 | Divorce |

Couples going through divorce in Maryland encounter many emotions as they navigate many steps. Sometimes, even the terms involved with those steps can seem daunting. One of those terms is a qualified domestic relations order (QDRO).

A QDRO is necessary for splitting retirement plans

You may be wondering what is a QRDO? The word “order” frightens some people because it sounds like a criminal proceeding. Relax because it is a legal document allowing you and your spouse to split retirement plans during divorce negotiations. It helps ensure the divorce agreement follows Internal Revenue Service and retirement plan rules while minimizing tax liability and outlining how payments will be made.

Even if you and your spouse readily agree on how you want to split your retirement plans, you still need this document before proceeding with the division. a QRDO is essential because some plans do not permit early withdrawals, and you may face severe monetary penalties for violating some plan aspects.

A QRDO works by specifying a dollar amount or a percentage of benefits to be paid to a plan participant’s ex-spouse. Distribution can occur as a lump sum, in regular plan payments, or as an amount of property to be distributed at a later date. Including QDRO assets in your settlement allows you to reassess your retirement planning decisions by giving you a better picture of how much money you have.

Ensuring you get a fair property settlement

Another purpose of a QDRO is to ensure that you get a fair property settlement resulting from your divorce negotiations. The types of assets that QDROs govern include assets from a qualified retirement plan like 401(k), 403(b), and SEP IRA plans. You can also designate these funds for child support if your plan allows you to do so.

Working with a certified financial divorce analyst can help you equitably divide your assets. These professionals can also help you understand your financial position in your post-divorce life, help you set a budget and readjust your retirement savings plan to help you have enough money to live on later in life.