Asset division is often a complex part of divorce law. Unless matters can be settled amicably via an agreement, the couple will have to go through arbitration or even to court.
Retirement funds such as a 401K, an IRA, or a company pension plan can also become part of the asset division in certain cases. This division should be spelled out in a Qualified Domestic Relations Order, or QDRO for short.
Once a QDRO is in place, a retirement plan administrator will sign that order and proceed with the disbursement of money to the receiving spouse. Without the QDRO, no plan administrator is obligated to do this.
When Do You Need a QDRO?
As the divorce proceedings begin, either of the spouses may believe that they are on the same page in terms of asset division. But if that division is not a part of the legal divorce decree, either spouse can back out of the verbal agreement. Without a QDRO, your partner's retirement funds may not be included in the divorce settlement agreement, even if you have a legal right to a portion of your partner's retirement assets.
In general, the QDRO form must be completed and presented to court well before your divorce moves into the final stages.
Why Having a QDRO is Necessary
Below is a quick list of reasons explaining why filing this legal order is so important:
- Any retirement funds added during the marriage are usually viewed as marital property, meaning you are legally entitled to some part of them.
- With a QDRO in place, the receiving spouse is guaranteed the court-determined amount, even if the other spouse should leave their job, cash in early, or die.
- A QDRO can also be used to ensure that spouse maintenance and support payments are made. A court can order that these payments can be made from the retirement asset, and this allows the paying spouse access to his retirement funds without tax penalty.
- Lastly, without a QDRO, most financial institutions will not release the funds to the entitled party.
Who Should File a QDRO?
The short and simple answer: the spouse who is on the receiving end of their portion of the retirement assets should file the QDRO. This is a protection that should be in place early on so that those funds cannot be directed someplace else by the asset holding spouse.
The matters can get more complex when both spouses have retirement assets. In such cases, it's best to come to an agreement with the other party on who gets what out of each other's retirement assets and file the QDRO jointly. If both of you cannot reach an agreement, the party whose retirement assets are less should file the Order.
Retirement Funds Division Can Get Complicated
When it comes to retirement assets, the matters can easily become complex since there are both legal and tax implications in place. That’s why you should always seek competent advice on the matter from a family law or divorce law attorney, experienced in such matters. Doing so is even more important if you are divorcing later in life, closer to retirement!