When Is a QDRO Used to Divide Assets Between Divorcing Spouses?

 Posted on April 15, 2021 in Division of Assets

Spouses need to address many different types of legal and financial matters when getting divorced, and attempting to understand the laws that apply to them and the terminology used in their case can sometimes be overwhelming. Spouses who own assets such as retirement accounts or pensions may have heard that they should use a qualified domestic relations order (QDRO). By understanding what this type of order covers and when it should be used, spouses can make sure they will be able to divide their marital assets correctly while addressing any related financial issues.

Using a QDRO to Divide Retirement Assets

All assets acquired by spouses during their marriage will need to be fairly and equitably divided during the divorce process. In addition to physical property, assets may include retirement savings or benefits that may not be accessible by the spouses at the time of their divorce. Contributions made by a spouse to a retirement savings account or pension benefits that a person earned while married may need to be divided either at the time of divorce or in the future.

Typically, the administrator of a qualified retirement plan that is covered by the Employee Retirement Income Security Act (ERISA) can only pay benefits to the person participating in the plan. A QDRO will allow benefits to be paid to an alternate payee. This order will provide instructions to the plan administrator stating that either a specific monetary amount or a percentage of benefits should be paid to a person’s ex-spouse.

For retirement savings accounts such as 401(k)s, a QDRO will usually specify that a certain amount of the funds in the account will be withdrawn and paid to the account holder’s ex-spouse. When using a QDRO, a person will not be required to pay penalties for early withdrawal, and taxes will not apply to the withdrawal as long as the ex-spouse rolls the funds over into their own retirement account. For IRAs or other accounts that are not covered by ERISA, a QDRO will not be needed, and funds can be withdrawn using a “transfer incident to divorce.”

For pension benefits that a person earned while married, a QDRO may be used to specify that a certain percentage of benefits will be paid to the person’s ex-spouse. This percentage will be based on the amount of time the person was married while earning pension benefits. Once the person retires and begins receiving benefits, the plan administrator will follow the instructions in the QDRO and make payments to the alternate payee.

Contact Our DuPage County Asset Division Attorneys

If you need to determine how to handle retirement accounts or other financial assets during your divorce, Calabrese Associates, P.C. can help you understand your rights, and we will provide you with representation as you negotiate a divorce settlement. To learn how we can help you complete your divorce successfully, contact our Naperville property division lawyers by calling our office at 630-393-3111.

Sources:

https://www.investopedia.com/personal-finance/whats-qdro/

https://www.thebalance.com/do-you-need-a-qdro-after-divorce-4047149