A divorce settlement agreement requires a qualified domestic relations order (QDRO) when one of the spouses has a retirement pension. Specifically, this domestic relations order creates an alternate payee’s right to receive, or assigns to an alternate payee the right to receive, a portion of the benefits payable to a participant under a retirement plan provided that certain requirements are met. That is, the QDRO allows the pending ex-spouse to receive a portion of the pension payments or a balance of the qualified plan. In a typical scenario, the qualified domestic relations order divides the assets 50% when gained from the beginning of the marriage until its dissolution.
For more information, see the US Department of Labor FAQs.
Is There Tax Liability?
- Outside a QDRO: if an individual chooses to distribute the assets to the ex-spouse outside of a QDRO, the individual retains tax liability on the ex-spouse’s portion, even though the assets have been distributed and the individual no longer possesses the assets. That is, the individual will owe the IRS for money that the ex-spouse has received and may also owe a 10% premature withdrawal penalty.
- Inside a QDRO: the ex-spouse becomes liable for paying the income taxes incurred once the ex-spouse receives the distribution from a pension or annuity.
What is a QDRO Rollover?
The QDRO allows the ex-spouse to withdraw his or her share of the pension or annuity and roll over the money into a separate IRA. This IRA rollover gives the ex-spouse the ability to manage his or her retirement funds while postponing taxes until the funds are actually withdrawn from the IRA.
What Should I Put in My Divorce Decree?
- Name of the plan participant and an alternate payee (ex-spouse)
- List each qualified retirement plan that is being divided
- Provide the dollar amount or % of benefits paid from each qualified retirement plan
- List the number of payments that the QDRO covers
- Explain that a QDRO will be set up pursuant to the IRC
Contact a Lawyer Regarding QDROs
If you have questions regarding a Qualified Domestic Relations Order and would like more information, contact a family law attorney at PEARSON BUTLER Law. Our divorce attorneys are experienced setting up QDROs and are happy to discuss the specifics of your individual case and how a QDRO may help you with your short and long-term planning needs. Call PEARSON BUTLER Law at (801) 495-4104.