If you and your spouse decide to divorce, you are likely aware that you will need to divide your assets and debts. However, you may not have considered that your retirement plan is included in that division.
A Qualified Domestic Relations Order (QDRO) gives your former spouse the right to receive benefits from your retirement plan. The retirement plan can be a 401(k), a pension plan or certain other types of accounts. The QDRO must meet certain requirements to be valid.
It must identify the retirement plan and the participant, including their name, address and account information, the former spouse who is entitled to the benefits and how the benefits will be paid. It should include the amount or percentage that must be paid and how it will be distributed. This could be in a lump sum or a periodic payment, for example.
It must include contact information for the plan administrator, who will be responsible for reviewing the QDRO and ensuring it complies with the terms of the plan and legal requirements.
Once the plan administrator approves the QDRO, you and your former spouse should receive a copy. It’s important to retain this document. Also, there may be tax reporting requirements related to the retirement benefit distribution, which you will want to keep in mind as tax filing time approaches.
Finally, you may want to update the beneficiary designations on your retirement account, since the QDRO may have changed those.
The QDRO process can seem complicated and time-consuming, but it is worth taking time to ensure it is done accurately and by a qualified legal professional.