How does a QDRO help with the division of retirement accounts?

On Behalf of | Dec 17, 2021 | Divorce

Divorces involving couples who have stayed married for a long time or who have substantial assets often become quite complex. The more assets that the couple has together, the harder it is to split everything up when they divorce.

Retirement accounts and pensions can be focal points of disagreement between spouses. Being able to protect your financial resources for your retirement is likely a major priority for you in your divorce. Although you will likely have to divide your retirement savings or pension, the good news is that there is a way to handle that process that preserves as much of your account’s value as possible.

What is a QDRO?

To divide your property after divorce, you often need a court order. Even accounts held in one person’s name may be subject to division in divorce. A qualified domestic relations order (QDRO) is a document that helps divide retirement accounts or pensions during a divorce.

Once the judge enters the property division ruling or approves the couple’s settlement, one of their attorneys can draft the QDRO. The courts have to review and approve it to ensure accuracy. After court approval, the spouses can file the QDRO with the plan administrator. This financial professional then takes a portion of the existing account and deposits it into an account for the alternate payee or spouse receiving a share of the retirement account or pension.

Why do people need to use a QDRO?

There are legal restrictions on when you can access the funds in your retirement accounts. Many tax-sheltered retirement accounts have penalties and taxes that apply to early withdrawals.

To avoid diminishing your retirement savings by triggering these penalties, you need to use a QDRO to address the division of your retirement savings. If you properly utilize a QDRO, you can split your retirement accounts fairly without losing anything more than the share that your spouse receives.

Learning about the different tools to help you handle financial matters during your divorce can empower you. You can negotiate better terms when you settle with your spouse or push for a fair outcome during divorce litigation. Understanding the basics of property division can make it easier for you to assert your rights regarding marital assets like a pension or retirement accounts.