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QDRO: An Important Divorce Instrument You May Not Know About

What is a QDRO? A QDRO, or a qualified domestic relations order, is a judgment, decree or order which divides retirement accounts. It may order the retirement plan to pay child support, alimony/spousal support or marital property to a spouse or former spouse.

When you get divorced, the QDRO is the instrument to divide your retirement accounts and can have important tax advantages. Often the drafting of a QDRO is something that occurs post-decree, or after the final divorce order has been entered. The divorce decree will instruct as to how the plan should be divided, but in order for retirement asset to be divided and awarded a QDRO must be drafted.

Here are some important considerations for QDROs:

  • The “alternative payee” is the recipient of the benefit.
  • Every retirement plan will need to approve the QDRO prior to a judge signing it. Many offer template language for attorneys to begin drafting and reference.
  • QDROs are easily forgotten – make sure your attorney is on top of this issue.
  • If you receive the benefit as a payout or as income as part of the QDRO incident to divorce, then you have to pay income tax on it, but no tax penalty.
  • If you receive the benefit as a retirement account rollover, then you will not have to pay tax on the amount received.
  • Discuss who will pay the costs and fees of the QDRO or whether you will divide this cost.
  • Have a professional negotiate and draft the QDRO. These are complicated and often involve a significant amount of money.

While you may not have heard of a QDRO before now, you should educate yourself on the importance of properly dividing retirement assets and the different options for addressing financial property settlements. Ask your family law attorney to go over all your options before deciding which is the best fit for your circumstances.

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