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Divorce, retirement accounts and QDRO: a quick primer

Few aspects of divorce proceedings generate as much confusion as QDROs for lay persons. Understanding what a QDRO is can help "smooth" the divorce process in some instances. One spouse may balk, while the other will welcome this court order.

A QDRO is awarded by the court during the property settlement and equitable asset division phase of divorce proceedings. This decree approves property settlement agreements that include one or more retirement plans. This judgment permits an "alternate payee" to collect funds from another's retirement plan. Alternate payees usually include a spouse, ex-spouse, a child or children or another qualified dependent.

At a minimum, a QDRO must contain certain specific information, including the following:

  • Name and mailing address of the plan owner and each alternate payee, identifying those with court permission to access retirement funds
  • Name and/or specific information of each plan (or plans) involved in the court order and property settlement agreement
  • Method of calculating the amount or percentage to which the alternate payee is entitled, e.g., payee will receive 35 percent of retirement fund "X"
  • Time period or schedule (including number) of payments the alternate payee will receive

Although divorce participants can complete QDRO forms by themselves, they are better served and protected by having a qualified attorney offer advice and help because of the legal necessities and wide-ranging ramification for each party.

Retirement plan administrators must approve components of a QDRO, providing for fund transfers to others from qualified retirement plans. Fortunately, fund transfers, per QDRO language, are not subject to IRS early-withdrawal penalties for either party.

Source: Reuters, "What is a QDRO? How divorce affects retirement," Andrew Chow, April 19, 2012

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