Couples who decide to divorce will likely need to divide their property. Some types of property are harder to divide than others.
One of the trickiest types of assets to divide is a retirement account. People going through a divorce can divide their accounts using something known as a Qualified Domestic Relations Order, also known as a QDRO.
A QDRO is a legal order that divides retirement benefits between spouses. These benefits may include pension plans, 401k accounts, or employer retirement plans. The retirement plan that is divided must be covered by the Employee Retirement Income Security Act (ERISA).
The QDRO must identify the retirement plan and must specify how the benefits will be divided, such as a percentage or a specific dollar amount. It must be approved by the retirement plan’s administrator. The administrator may be required to create a separate account for the receiving spouse or make direct payments to them. The document may also require that taxes are withheld from the payments.
A QDRO is complex, and it’s important to have a qualified professional complete it. If it contains inaccurate information, there can be negative and costly consequences.
If it does not meet the retirement plan’s requirements, it may be rejected by the administrator which can cause a delay in benefits. If it does not accurately divide the benefits between the spouses, it may lead to further legal action to correct it.
Finally, the parties could have unintended tax penalties or liabilities if taxes are not properly withheld from the distributions.