Importance of a QDRO in a Divorce
According to recent statistics, one in four people who get divorced are 50 years old or older. That’s a sharp increase from 1990 when that figure was only one in ten. As more and more people who are approaching retirement age divorce, one of the financial resources that may now become an issue (compared to younger couples) are retirement plans and any other employer-related accounts.
Plans such as 401(k)s, employee stocks, profit sharing, and pension plans all become part of the marital estate that needs to be divided between the spouses. If a couple cannot agree on how those items should be split, the courts will decide for them.
Once a decision is made, there are steps that should be taken to protect both parties. A Qualified Domestic Relations Order (QDRO) recognizes that an ex-spouse has a right to part of the retirement benefits of the other. Once approved by the court, the QDRO needs to be submitted to whoever is administrating the retirement account(s).
The order should specify just how the funds are to be divided. It should also specify that no funds can be drawn out or borrowed against until the account has been divided between the two former spouses.
The QDRO permits the ex-spouse to take their share of the accounts and roll it over into their own retirement plan, based on the rules of the plans.
The document can also address survivor benefits. Depending on the final agreement or court decision made, the spouse receiving a share of the fund can be awarded what’s referred to as “separate interest”. This stipulation means those funds will be received for the rest of their lives. A separate stipulation should be made in the QDRO that names him or her as beneficiary in the event of the spouse who owns that account dies before they retire.
The QDRO also protects the person spouse whose retirement funds are being divided. Without one, they are responsible for all income taxes on the funds that their ex-spouse will be receiving, as well as any early-withdrawal fees.
The financial issues in a divorce can be very complex. That’s why it’s important to have a qualified Kane County family law attorney representing you.