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Why qualified domestic relations orders are important

| Sep 29, 2020 | Divorce

When people decide to get divorced in Maryland, they will have to divide their marital assets and debts as a part of the divorce process. Money saved through retirement plans during the marriage will also need to be divided. However, the division of retirement savings must be completed correctly with a qualified domestic relations order to avoid potential tax penalties and consequences.

What is a QDRO?

A qualified domestics relations order, or QDRO, is a court order that gives a spouse the right to receive a portion of the other spouse’s retirement plan savings. The QDRO is prepared during the divorce proceedings and is sent to the administrator of the retirement plan. Once the divorce is final, the retirement plan administrator will take the specified percentage of the member’s retirement plan savings and distribute the money to the recipient spouse. To avoid paying taxes on the money that is received, the recipient spouse can choose to roll the money over to a new retirement account in his or her name.

Why a QDRO is necessary

Under federal law, retirement plan savings cannot be divided between spouses without a QDRO. If the spouse who owns the plan simply withdraws the portion for his or her spouse, the owner of the account may face an early withdrawal penalty and be taxed on the amount that is withdrawn. A divorce decree is not enough. Both documents are necessary for the distribution to be authorized and to avoid the penalties.

Property division in a divorce can be complicated. People who have retirement plans may benefit from consulting with experienced family law attorneys throughout the divorce process. An attorney may help his or her client negotiate how the property will be divided and prepare a QDRO to legally divide any retirement plan savings that might be at issue.

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