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One shared marital asset that can become difficult to divide during divorce is the retirement plan. There are several reasons for this. The closer a couple is to retirement, the more each party wants to hold on to those retirement savings as a cushion. This is true regardless of who worked more or by themselves to make those savings. Even when couples agree on who gets how much of the retirement account, dividing it up without using the proper steps can lead to fees and penalties. This is where a QDRO comes in. 

The IRS defines the QDRO as an order, decree or court judgment that allows the account holder(s) to use the retirement plan to pay for specific family obligations. These include the following: 

  • Spousal support 
  • Child support 
  • Marital property rights 

This decree contains very specific information that specifies how it should be divided. This is usually broken down into percentage points for each payee and participant. It also includes information about the participant and payees, such as their mailing addresses and full names. In some instances, an individual may even roll over the payments into a new qualified retirement plan, tax free. 

CNBC notes that divorcees use a QDRO to divide up the retirement plan whether they have a traditional pension plan or a 401(k) plan. Couples that have several different accounts to split, need a different QDRO for each one. The plan also needs to spell out what happens to the money after the separation, such as rolling over a 401(k) account into an IRA plan.