The term is an oddity and appears to be one of those acronyms designed to confuse rather than enlighten: QDRO. Though QDROs may seem confusing, if you’re facing a Minnesota divorce it’s essential that you not only become familiar with the term, but that you understand the impact it can have on your case.
What does “QDRO” stand for?
If your divorce case has progressed past a certain stage, chances are you’ve run across the term “QDRO” and likely were left scratching your head. First things first, QDRO stands for “Qualified Domestic Relations Order.” See, doesn’t everything make sense now? Not hardly, but unraveling the acronym is an important step.
Ok, now what does it mean?
Now that we know what a QDRO is, we should tackle the question of what does it do. Ask any Minnesota family law attorney (or retirement professional) and they will tell you how important QDROs are in dividing retirement assets during a divorce.
A QDRO is a court order that authorizes your retirement plan administrator to disburse money from your fund to someone other than yourself. QDROs are used regularly in divorces because they allow retirement accounts to be divided between two people without incurring substantial tax penalties. QDROs thus play an important role in the equitable division process because they facilitate the division of one especially important category of marital assets: retirement money.
How does a QDRO work?
Like we said previously, a QDRO is a court document that formally approves of a property-settlement agreement that involves a retirement plan. The QDRO serves as official notice to your retirement plan administrator that changes need to be made to the account and the QDRO then lays out precisely how those changes need to happen.
What information is contained in a QDRO?
Almost every QDRO will contain the following information:
- The name and most recent mailing address of the participant (the person whose account it is), and the alternate payee (the other spouse);
- The name of each retirement plan to which the order applies;
- The amount or percentage, or method for calculating the amount or percentage, to be paid to the alternate payee;
- The number of payments, or time period, covered by the QDRO.
What happens next?
After your Minnesota family law attorney has drafted your QDRO, the document must then be sent to the retirement plan’s administrator who ensures that it complies with the plan’s sometimes tedious rules. Assuming the document is approved, then a transfer of assets can take place, moving money from your account to a new account for your spouse. The important point is that by using a QDRO you will not incur any early-withdrawal penalty.
What happens if you don’t use a QDRO?
Not using a QDRO to divide retirement money is a bad decision all the way around. When you don’t use a QDRO and instead simply withdraw the money for your spouse, this withdrawal is treated as at taxable distribution and the accountholder will pay the penalty. This means you owe the IRS for money that actually winds up in your ex’s pocket. While this works great for your ex who will receive money at your expense, it represents a potentially large waste of money on your part. On top of the tax bill you’ll face, you may also get slapped with a 10 percent early withdrawal penalty.
An experienced Eagan, Minnesota family law attorney can help walk you through the difficult process of divorce, including offering advice on confusing financial issues such as alimony and helping negotiate emotional subjects like child custody arrangements. For more information on divorce in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.
Source: “Qualified Domestic Relations Orders,” published at DOL.gov.
See Our Related Blog Posts:
Minnesota Family Law: What Happens To The House?
Minnesota Family Law And The Divorce Discovery Process
How much will it cost me to do a qdro with you
Need help with the division of 401K we already are divorce and we have the court order. Qualified Domestic Relations Orders (QDRO’s)