If you are dividing a pension, 401k, or 403b, or deferred compensation plan in your divorce, then you will need a qualified domestic relations order, or QDRO (pronounced “KWAH-dro”). But people have many questions about QDROS, and I hope to answer some of them in this article.
What is a QDRO?
A QDRO is a special order that complies with IRS regulations and allows money to be taken out of certain retirement plans without penalties. The QDRO must contain certain specific information, such as the account-holder’s name and the spouse’s name, last known mailing addresses of both, the participant and each alternate payee’s name and last known mailing address, the amount or percentage the spouse should receive.
What can money from a QDRO be used for?
Funds specified in a QDRO can be used for the following purposes:
- For a division of assets
- For the payment of spousal maintenance
- For the payment of child support
What are the tax implications?
A spouse or former spouse who receives QDRO benefits from a retirement plan reports the payments received as if he or she were a plan participant. For example, if a pension is in payout status, then the spouse of the pension-holder would receive funds as the pension holder does – as income – per the parties marital settlement agreement and QDRO. In contrast, if a 401k account holder is older than fifty-nine and a half hears old, that account holder can withdraw funds from a 401k without penalty, but if the spouse receiving the funds via QDRO is not yet fifty-nine and a half, then the QDRO funds must be placed into an IRA to avoid a penalty.
Tax concerns can be complicated, and people should consult a tax professional before making tax-related decisions.
How do I get a QDRO?
Specialists drafts QDROs because it is a specialist field. QDROs are very technical.
For example, people often use attorneys who concentrate on retirement division, and some use accountants or actuaries who do the same. I wrote this article to the explain the role of a divorce actuary in Illinois.
You might want to see this article I wrote about getting a QDRO lawyer for post-divorce problems.
What if I’m supposed to use Wendy Drefahl at WFA Econometrics?
Many people in Illinois previously used Wendy Drefahl at WFA Econometrics. However, Wendy is no longer working in the retirement division area. Furthermore, Wendy was not a lawyer, nor an actuary or accountant.
WFA Econometrics had quite a bit of business. Perhaps that was because they seemed to cost less then some of the competition. But based on several cases I’ve handled, and speaking with an attorney who is expert in retirement division, I always objected to people wanting to use WFA Econometrics. I recently litigated and won a case where the other side hired WFA Econometrics to draft material that was presented in court.
What I always found strange was that many lawyers would draft their clients’ marital settlement agreement (“MSA”) to require the parties to use Wendy Drefahl at WFA Econometrics if they needed a QDRO or valuation of a retirement account.
If your MSA or judgment for dissolution required work from Wendy Drefahl at WFA Econometrics, then you will need to find another expert to handle your QDRO or retirement account valuation.
What I’m already divorce?
Some people have disputes about their retirement accounts even after they are divorced. That’s why I wrote this FAQ article on post-decree retirement division disputes.