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What is a qualified domestic relations order?

On Behalf of | Apr 8, 2024 | Family Law

The property division process is often one of the most complicated aspects of a Virginia divorce. As you go through the process, you are likely to hear many terms you are not familiar with, particularly if this is your first divorce.

This is natural. You are not expected to automatically know what every term means or how it applies to your case.

However, it is important to learn this information if it has the potential to affect the outcome of your divorce.

The division of retirement plans is an important aspect of many divorces, especially gray divorces, where married couples are more likely to have accumulated significant retirement funds.

Virginia’s property division laws

Virginia divides marital property equitably. This means the court divides fairly under the circumstances, and not necessarily equally.

The way property is divided depends on how the property is classified. For example, real property, such as houses or vacation homes that are awarded to one spouse is typically divided through a mortgage refinancing that removes the other spouse’s name from the property.

Personal property, such as cars or furniture, can be physically divided and a spouse’s name can usually be removed through presenting a copy of a divorce decree or settlement. The same reasoning generally applies to bank accounts or other financial assets.

The division of retirement accounts is slightly more complicated. Retirement accounts are divided using a qualified domestic relations order (QDRO)..

A QDRO is a document that allows retirement funds to be transferred from one spouse to another. There are typically detailed requirements and instructions involved with drafting and submitting a QDRO.

These requirements can differ depending on the type of retirement plan and/or your employer. It is important to know the requirements for your specific plan.

Why do you need a QDRO?

The reason a QDRO is necessary for dividing retirement accounts is to avoid tax penalties. You are usually taxed on any withdrawals you make from your retirement account.

A QDRO allows you to avoid this tax penalty for the withdrawal. If the funds from your retirement account are rolled over into a retirement account of your spouse’s, they can also avoid tax penalties.

However, if you are ordered to give a portion of your retirement account to your spouse and they choose to take it as cash or not roll it over into another retirement account, they could be required to pay taxes on the amount.

You should usually not try to draft a QDRO yourself. Knowing and understanding the requirements and properly drafting it can be cumbersome. One simple error in a QDRO could have serious consequences for you and/or your spouse.

Cancelling or changing a QDRO

Additionally, it is difficult to cancel or change a QDRO. A QDRO must be approved by a court and submitted to a retirement plan administrator. It is nearly impossible to cancel a QDRO once submitted and amending one can be challenging.

The QDRO process is generally not quick. While there is no definite time, it is common for the process to take two to three months or more.

The process only becomes longer if you want to change any of the QDRO terms. Therefore, you should verify that you understand the process and implications before submission.