Skip to Content
Schedule a Consultation: 443-331-2770
Top

What Is A QDRO? And How Does A QDRO Work In A Divorce?

A calculator, dollar bills, a booklet, and a pen
|

Did you know that there are some retirement assets such as 401Ks, 403Bs, and qualified plans that aren’t automatically divided during a divorce? What this means is you could end up significantly losing out if you don’t act now and apply for a QDRO to ensure your interests are protected. Fortunately, you can read all about what a QDRO is, how does a QDRO work in a divorce, and what both the advantages and disadvantages of using one are, below.

What is a QDRO?

If you are considering a divorce, the question – what is a QDRO is a pertinent one. This is because a QDRO, otherwise known as a qualified domestic relations order, is a court decree stating that part of a retirement plan is paid to another individual in the event of a divorce.

It is necessary to get a QDRO because while assets will be divided between the couple involved, retirement plans aren’t automatically included in this.

Indeed, the administrator of certain types of retirement plans such as 401Ks, 403Bs, and qualified plans will not be able to divide these assets without a QDRO being in place.

How does a QDRO work in a divorce?

The question of how a QDRO works is one that you will need to understand if you are divorcing because as stated above this type of asset is counted as separate from other types divided in a divorce.

First of all, in the case of a QDRO, the person that holds the policy is known as the participant. The person that is petitioning for division of this asset is known as the beneficiary or alternate payee.

Also, a QDRO order always relates to retirement plans. However, it can be used by the beneficiary to gain access to these plans for several reasons including paying alimony and child support. To that end, not only can a former spouse be a beneficiary of a QDRO, but also a child or another dependent. Simply put, a QDRO grants the beneficiary access to a pre-agreed amount of the participant’s retirement plan assets.

Who completes the QDRO?

The beneficiary or alternate payees will act as an attorney to draft a QDRO on their behalf. Once this draft is complete it will be first given to the retirement plan administrator. The QDRO must be approved by the retirement plan administrator before it can be taken to the court.

Benefits of a QDRO

Also when understanding how a QDRO works it is vital to grasp the associated benefits and limitations.

A QDRO can make the division of retirement assets a great deal more straightforward, especially if you find a legal professional familiar with the process in your state. For example, if you are applying for a QDRO in Washington, then you will be best off looking for a DC divorce attorney.

Another important benefit of using a QDRO is that it can help both parties avoid penalties that are typically associated with early withdrawal. Usually, the IRS levies a 10% charge on any fund where money is removed before the participant is 59 ½ years old. However, by applying a QDRO special circumstances are indicated and such charges can be waived.

It is also critical to note that no additional tax will be levied against the beneficiary of the fund either. This is on the proviso that the money collected by them is transferred directly into another retirement account. However, if the transfer to another retirement account isn’t made, both income tax and the IRS additional 10% tax will be charged by the beneficiary.

Also when it comes to a QDRO, a major benefit is that it is an asset that can be used by the beneficiary for more immediate needs such as living expenses or housing. Indeed, it may be possible to take a loan out against the asset once your portion has been awarded to you, something that can then be used as security against a loan.

Finally, one of the biggest advantages of a QDRO is that it means specific instructions on how to divide this asset, in the instance that a loan has been taken out against it. Of course, this is vital because the beneficiary could end up getting less than they are entitled to if the remainder of the fund is required to pay off the loan. A QDRO stops this from happening.

Disadvantages of a QDRO

While there are many advantages to getting a QDRO, there are also some limitations that also need to be considered before you make your final decision. For example, the QDRO will only cover benefits that are already a part of the plan that is being offered. New ones cannot be added with a QDRO.

Additionally, a new QDRO will not override a new one. This means that if there is already one in place, funds cannot be transferred to a new beneficiary.

Also, aQDRO only covers plans and/or contributions that occurred during the marriage. That means any payments made beforehand would not be covered by the QDRO. Indeed, the amount paid out will be dependent on payment made during the marriage.

Why hire a DC divorce attorney to help you with your QDRO?

For those considering a divorce answering the question: how does a QDRO work in a divorce, is crucial. As you can see from the information above even QDROs which are seen as relatively simple in the world of asset division can be complicated to action, especially when the other burdens of divorce both emotional and financial are weighing on you.

However, because particular types of retirement provisions are not automatically divided during divorce a QDRO must be put in place if you want this to happen. The good news is that by partnering with our seasoned attorneys, you will get peace of mind, knowing the legal advice and representation we provide you is backed by years of successful practice experience.

Call our divorce attorneys on (443) 331-2770 today to schedule a consultation to discuss your QCRO needs, and ensure your interests are taken care of during your divorce.

The post What Is A QDRO? And How Does A QDRO Work In A Divorce? appeared first on Law Offices of Thomas Stahl.

Categories: