When it comes to property division in a divorce, there are often retirement or pension plans that are on the table to be split between the divorcing spouses. Splitting a qualified retirement plan or pension plan in a divorce requires the preparation of a QDRO (qualified domestic relations order).
A QDRO allows for the division of qualified plan assets in a tax-deferred manner for the receiving spouse, and provides that spouse with 60 days in which to roll it over into an IRA without penalty. If you want to take some money out for divorce expenses, you can make a one-time withdrawal before you do a rollover without incurring a 10% penalty, even if you are under age 59 1/2, but you will still have to pay income tax on that withdrawal.
Some IRA plans do not require a QDRO, so it is important for you to check with the company administering the IRA to determine if one is required. Some administration companies only require a copy of your final Decree and completion of a transfer form.
With a QDRO, administrators of your retirement plan or pension are officially notified that benefits are to be distributed according to a court order in a divorce action. Properly drafted, the QDRO will address issues like survivor benefits so a surviving spouse can be assured of continuing to receive funds if the plan participant dies first.
How to Get a QDRO
Start by asking your qualified retirement account or pension administrator about their QDRO process. Some have standard forms and others require that the QDRO be prepared by an actuary or a special QDRO preparer. Don’t try to DIY it. Ask your attorney for guidance.
Once approved by the plan administrator, the QDRO is entered as an order by the court and sent to the plan administrator to be fulfilled.
For over 40 years, your legal team at Koenig|Dunne has counseled clients in thousands of initial consultations, and we are here to ensure that your initial consultation provides meaningful answers to the questions that matter the most to you.