The largest asset most married people have is their home. Coming in a close second to that is sometimes the retirement accounts. If the couple decides they need to divorce, those retirement accounts must be divided.
For some retirement accounts, the court must prepare a qualified domestic relations order so the plan administrator can divide the account. Not all retirement plans are subjected to this. Some, such as individual retirement plans, require a different order known as a transfer incident to divorce.
When do you need a QDRO?
You need to have a QDRO if you have the following retirement accounts:
- 401(k) plan
- Private pension plan
- Defined benefit plan
- 457 plan
- 403(b) plan
- Employee stock ownership plan
Having a QDRO has many benefits. It ensures you get what you’re supposed to receive from the retirement accounts. It also helps to curb some taxes that you would have to pay without it. The tax benefits vary. If you want to move the funds into a Roth IRA or take it out in cash, you’re responsible for paying taxes on the amount, but you won’t have to pay the 10% penalty for early withdrawal.
What’s included in a QDRO?
The QDRO is a detailed document that includes identifying information for the parties involved and the plan involved. It also has a breakdown of how the court wants the account divided between the parties. It can only divide the amount that’s actually in the retirement account so it’s important that the order is accurate.
The plan administrator receives the QDRO and reviews it. If anything is amiss, they will reject it for the court to correct the issues with it. This can delay the distribution so it’s crucial to ensure that everything is handled correctly the first time.
Working out the property division agreement is crucial when you’re going through a divorce. Working with a team who can help you to get everything in order can help to reduce your stress during a challenging time. This also helps to ensure that you have your affairs in order to start your new life after the divorce is finalized.