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Why do I need a QDRO?

On Behalf of | Apr 20, 2020 | divorce | 0 comments

If you and your spouse are getting divorced and one of your primary assets that may be divided is your retirement account, you will want to proceed carefully to protect yourself against unnecessary losses and penalties. As explained by Forbes, you are not typically allowed to take money out of a 401K or other employer-sponsored retirement account unless you meet the criteria for retirement. These criteria include being at least 59 years and six months old. A QDRO provides you with another option during a divorce.

QDROs for splitting a retirement account

A qualified domestic relations order may be established, allowing you the legal ability to access your retirement savings to split that asset with your spouse during your divorce. The QDRO names your spouse as a qualified payee on the account just as if they were a plan participant. This enables money to be provided to them without passing through you, preventing the early withdrawal penalties you may pay if you took the money out before retirement age or for a non-retirement purpose.

Preventing high tax assessments

The Internal Revenue Service indicates that when payments are made to your former spouse pursuant to a QDRO, it is they – not you – who will be responsible for any income taxes on the money. The recipient may avoid immediate tax assessments by rolling the money into another qualifying retirement account.

This information is not intended to provide legal advice but is instead meant to give divorcing spouses who must share a portion of their 401K savings with their former partner an understanding of the importance of obtaining a qualified domestic relations order.