What Is A Qualified Domestic Relations Order (QDRO) And Why Is It Necessary?
A couple is approaching retirement, but they’ve decided they want to divorce nonetheless. They have been married for 32 years and in that time have amassed three residential properties, a boat, two motorcycles, an IRA, two 401(K)s, a Fidelity Account, CD accounts, off-shore accounts and countless other investments. Now that they want to divorce, they honestly do not know where to begin because they share so many assets together. How do they decide what is to be divided? If each spouse has a 401K, can they go their separate ways or does each retirement plan’s contents need to be divided evenly?
What is a QDRO?
A QDRO is a Qualified Domestic Relations Order governing the division of retirement plans and 401K’s. The employee’s pension plan administrator (usually human resources) must complete the QDRO. Pension distributions cannot occur to either spouse until the form is completed. If you are not sure whether you or your spouse have a 401K or employer sponsored pension or retirement plan, contact your supervisor or human resources contact Before you sign anything, you should meet with a family law attorney specializing in equitable distribution. There are specific rules the parties must adhere to regarding retirement assets. Only a judge has the power to establish how the plan participant(employee) will distribute plan assets with the non-participant (ex-spouse). Depending on the length of the marriage and what the parties agree to, each spouse could get half of the value or one spouse could elect not to receive distributions. Often there is a penalty associated with early withdrawal as well.
What if Both Spouses Have a 401K Account?
A 401K account might be an elderly couple’s largest joint asset, especially if they made steady payments towards it since the start of their employment. So it goes without saying that dividing the contents is difficult for some couples. If both spouses have a 401K account with their respective employers, and in the marital settlement agreement they decide that they will go their separate ways retaining the funds in their individual retirement accounts, that is okay. Unfortunately, this rarely occurs for a few reasons. First, many spouses do not work in the same occupation or field as the other and therefore might not earn as much. Not all employers match an employee’s contributions overtime, and therefore one spouse might have amassed a much larger retirement nest egg than the other spouse.
However, any contributions made by the employee spouse during the length of the marriage is marital property. And, a spouse cannot agree with the other spouse to unilaterally make withdrawals from the account and pay the other spouse directly. The employee does not have authority to make distributions without the QDRO and there are also tax implications to making withdrawals from a retirement account. This is why it is crucial to consult with a licensed, experienced family law attorney before making any major decisions.
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At Bubley & Bubley, P.A., our attorneys work with divorce and family law clients during tumultuous times in their lives. Our Tampa family lawyers possess decades of experience handling advanced equitable distribution cases where asset division is not simple. If you are considering divorce, you need someone on your side who can help you make strategic decisions to protect your future. We can help you identify tools, draft a marital settlement agreement and ensure you are getting your fair share of the marital assets. Call us today for a consultation to learn about your potential options.