The Division of Retirement Benefits Through QDROs

The division of retirement savings is often one of the most significant considerations in a legal separation or divorce case. The retirement accounts are often among the most valuable assets in any given divorce, so it’s important to have a legal professional draft any judgment that requires the division of retirement savings, or else there’s the risk of losing hundreds of thousands of dollars that you may be entitled to.

Retirement interests may be assigned only if the judgment, decree, or order creating or recognizing a spouse’s or former spouse’s interest in an individual’s retirement constitutes a “qualified domestic relations order” or “QDRO.” A QDRO recognizes the existence of an “alternate payee’s” right to receive, or assigns to an alternate payee the right to receive, all or a portion of the benefits payable with respect to a participant under a retirement plan.

Essentially, the QDRO will instruct the plan administrator on how to pay the non-employee spouse’s share of the retirement plan benefits. A QDRO allows those funds in a retirement account to be separated and withdrawn without penalty and deposited into the non-employee spouse’s retirement account. A series of distributions from an employee spouse’s qualified plan to the non-employee spouse would be exempt from any early distribution penalty tax as long as the non-employee spouse is under age 59 ½. The U.S. Department of Labor has detailed information about QDROs available here.