Is a QDRO necessary when getting divorced?

Divorcing Florida spouses who may need to split retirement accounts or use 401(K) funds to pay alimony or child support should learn about QDROs.

Many divorcing couples in Florida may have heard about something called a Qualified Domestic Relations Order but may not fully understand what it is and when it may be needed.

The QDRO can be complicated as there are very specific instances when it is required or even applicable; understanding these orders are important so that it is appropriately used. Lack of a QDRO when applicable can have a significant financial impact on people.

Most common use of a QDRO

Perhaps the most commonly known reason for a Qualified Domestic Relations Order is when a couple needs to split the assets in a retirement account. This often happens as part of a property division settlement during a divorce.

The Internal Revenue Service explains that a QDRO legally establishes the former spouse as eligible to receive distributions from the account. As is standard with retirement accounts, the owners are generally the only people allowed to receive money from the funds.

When money is received by a former spouse, that person may be responsible for taxes on the distributed amount. However, rolling the distribution over into another qualifying retirement account may eliminate the assessment of taxes.

Forbes emphasizes the importance of a QDRO for this purpose and cautions spouses against thinking that their divorce agreements can suffice for proof that a distribution is part of a divorce. Divorce decrees, no matter how detailed, cannot eliminate the penalties or taxes that may result when 401K or pension funds are used to satisfy property division awards.

Other uses of a QDRO

In addition to splitting a marital estate, a QDRO can also outline the legal use of retirement money for paying spousal or child support. It can even help spouses who are concerned that their former partners may not pay the ordered support amounts. The retirement fund can essentially have a lien put on it by the QDRO to guard against non-payment.

QDRO is not always applicable

Only retirement accounts that are governed by the Employee Retirement Income Security Act will utilize the QDRO. The two most common types of ERISA accounts are pension plans and 401Ks.

When used, a QDRO should be sent to the administrator of the plan for approval well in advance of the divorce being finalized. This allows time for adjustments if they are required by the plan administrator. The administrator must approve all provisions of the QDRO before it can be put into effect.

Working with an attorney during a divorce is always important as this is the best way of ensuring details like the need for a QDRO are not overlooked.