Division of assets is arguably one of the most complex aspects of a divorce—especially in divorce cases with a high number of assets, or with extremely valuable assets. One of the assets that can be most difficult to handle is retirement accounts. It can often be difficult to determine how those funds should be divided in a divorce. However, a qualified domestic relations order (QDRO) can simplify this division to an extent. Here’s what you need to know about what a QDRO is and how it impacts your divorce.
What Is a QDRO?
A QDRO is a court order that can be included in your divorce agreement. This portion of the agreement acknowledges the ex-spouse’s entitlement to a portion of the other party’s retirement plan. A QDRO is included in most divorce agreements, unless you decide to surrender your right to the retirement funds in exchange for other assets.
How Much Does It Allot?
In most cases, the QDRO will award the ex-spouse with half the value of the increase in retirement funds between the time of marriage and the time of divorce. In other words, the court will look at the total value of retirement funds at the time of marriage, subtract that from its current value, and then divide that amount in half.
Essentially, the court will award both spouses with half of whatever funds were added to the retirement accounts throughout their marriage. Any funds already in the retirement accounts would be considered the sole property of the account holder, and would not be divided.
Of course, this is just the most common outcome. Allotment of assets can change based on various circumstances in your divorce case.
How Do You Receive the Payments?
If you hope to receive a portion of your ex’s retirement account funds, then it is essential that you have a QDRO. In some circumstances, a simple divorce decree is not enough, and the retirement plan may not pay out funds to a former spouse. Many retirement plans require a QDRO in a separate document from the divorce decree in order for you to receive your portion of the funds.
Once you have a QDRO, you must then file it with the retirement plan company. It is best to do this as quickly as possible, to ensure you receive the funds you are entitled to.
When your ex retires, you will both then begin to receive distributions from the retirement account, based on the amounts outlined in the QDRO.
Can You File After Divorce?
As mentioned above, it is usually best to file your QDRO as quickly as possible. However, it is technically possible to file it long after the divorce has been finalized. But it’s important to note doing this can result in you receiving less money.
For example, if you finalize your divorce, then your ex retires a short while later, he or she may begin to receive their retirement account distributions. If you then file your QDRO with the retirement plan, they will still honor it. However, the division stipulated in the QDRO will only apply to future payments, and you will not receive any portion of distributions that have already been given.
Can Payments Go to Alternate Beneficiaries?
Just as you can name secondary beneficiaries on your own retirement account, you can also name alternate beneficiaries of your QDRO. If you are awarded 50% of the retirement funds in your divorce, but you pass away prior to those distributions being made, you can have the payments sent to a new spouse or a dependent.
If you remarry after your initial QDRO is filed, you can file a new one with the payment plan that lists your new spouse as a beneficiary.
How Do You Get a QDRO?
The first step in obtaining a QDRO is to find an attorney and ensure they’re aware of the retirement assets during the divorce proceedings. Your attorney will then inform the court that your former spouse has earned a retirement benefit, and will ensure that all information relevant to the accounts is provided to the court, so that those assets can be properly divided.
After the court has calculated and drafted the divorce decree, stating your right to a portion of the retirement funds, you will need to request a separate QDRO that you can file with the retirement plan. If you have any issues with getting a QDRO, or have further questions about how it could impact your divorce, contact one of our attorneys.