What is a Qualified Domestic Relations Order (QDRO)?
When a couple divorces, one of the assets often divided and awarded by the court is a portion of the parties’ retirement plans. A Qualified Domestic Relations Order, commonly called a QDRO, is an order signed by the court that deals with pension funds. The QDRO establishes your soon to be ex’s legal entitlement to receive a designated amount of a qualified plan account or benefits.
The party who is awarded a portion of retirement benefits will subsequently be responsible for paying related income taxes and fees associated with withdrawing the benefits.
A QDRO allows your ex-spouse to withdraw their share of the money or roll it over into another IRA as outlined by the terms in the QDRO. Rolling over the funds into an IRA allows your ex to postpone the payment of taxes on the money until it is actually withdrawn from the IRA. This aspect is important because it makes the party awarded the funds responsible for the taxes rather than the beneficiary of the retirement plan.
As QDROS can be very intricately drafted and have important tax repercussions, it is very important to have a family law attorney who understands the complexities of QDROs and does not just rely on an employer’s sample plans.