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Understanding QDRO Basics and Comprehensive Legal Guidelines

Understanding QDRO Basics and Comprehensive Legal Guidelines

November 15, 2017

By Johnson/Turner Legal

Understanding QDRO Basics and Comprehensive Legal Guidelines

November 15, 2017

By Johnson/Turner Legal

An older man and woman hold up two separate pieces of a broken paper heart.When people are married, they work together to build a future together. They will plan and invest, looking forward to the day when they can retire.  However, not every relationship stands the test of time and sometimes divorce becomes a reality. When this happens, the assets for the future that the couple has worked hard to build will have to be divided. Real estate, personal property, and bank accounts will all have to be divided during the divorce. Different types of assets require different types of tools to divide them in an appropriate and efficient way that will take the least negative toll on the couple’s financial future. When it comes to retirement plans or pension plans, the tool is called a Qualified Domestic Relations Order, or “QDRO” for short.

During a divorce, a court will make an equitable division of all of the marital property, including retirement or pension accounts and benefits that accrued during the marriage. For many of these types of accounts, there can be severe penalties and tax consequences for cashing out the account before retirement.  A QDRO is a way to divide these accounts without incurring these penalties. A QDRO is an order from the court that directs the administrator of the pension plan or retirement account to award a portion of the account or benefits to the employee’s former spouse. The percentage awarded does not have to be precisely half, but the percentage or dollar amount awarded must be specifically stated in the order.  Not all types of retirement accounts are eligible for a QDRO. The plan must be an employer-administrated plan. Moreover, military retirement pay, state retirement plans, and many deferred compensation plans are not eligible, and instead, follow a different procedure to divide.

A QDRO is most commonly used to distribute marital assets. A former spouse may be awarded all or part of a plan as his or her equitable share.  However, a QDRO may also be used to collect on child support arrearages or even on future child support payments.

A QDRO has very specific requirements in order to be accepted by plan administrators. Not only must the QDRO comport with the law in Minnesota for QDROs, but it must also comport with the U.S. Tax Code and contain specific identifying information as to both the spouses and the accounts to be divided.

Planning for your retirement after divorce and using the right tools requires the help of an experienced lawyer. Call us today at (320) 299-4249 for a consultation.

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