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We specialize in Qualified Domestic Relations Orders (QDROs), essential legal documents used to divide retirement assets like pensions and 401(k) plans in divorce settlements. A QDRO ensures an equitable and compliant distribution of these assets, clearly defining post-divorce entitlements and safeguarding each party’s financial interests.
Negotiating and drafting a QDRO is crucial to avoid tax issues and delays in accessing entitled retirement benefits. Without a properly executed QDRO, individuals may struggle to receive their share of retirement assets. That’s why it’s important to work with professionals who are well-versed in QDRO details to guarantee a smooth and accurate division of retirement benefits
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Your QDRO Questions Answered
Receive comprehensive answers and expert guidance to help clients and attorneys navigate this crucial part of the divorce process with clarity and confidence.
What is a Qualified Domestic Relations Order?
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401(k), 403(b), and 457 plans.
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Thrift plans.
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Profit-sharing plans.
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Money purchase plans.
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Employee stock ownership plans.
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Tax-sheltered annuities.
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Defined benefit or pension plans.
Why do I Need a QDRO?​
A QDRO is the specific court order required of the company or plan administrator to divide an employer-sponsored retirement benefit as a non-taxable event incident to divorce. If you were awarded or ordered to pay a portion of an employer-sponsored retirement benefit to a spouse, former spouse, or dependent, a QDRO is required to secure the order of the court and the provisions of the Marital Settlement Agreement, Decree, or Judgment of Divorce.
Can I get a QDRO prepared before the divorce is final?
Yes. A QDRO can be prepared, and a proposed draft can be served on plan administrators for formal review prior to filing the QDRO with the court. It is suggested that a draft or unsigned copy be served on plan administrators for pre-approval and review prior to filing the QDRO with the court. The review and pre-approval by plan administrators can generally take 30-60 days.
Does a QDRO create a taxable event?
No. The QDRO is drafted specifically to execute a non-taxable transfer from the Participant’s account to an account that must be established in the name of the Alternate Payee. The division of the account pursuant to a QDRO is a non-taxable event to both parties.
What about taxes?
As mentioned, the QDRO itself does not create a taxable event, but any subsequent distribution from either account will. Tax liability is created when funds are distributed (a rollover is a non-taxable event) from the account(s), and the distributions are treated like ordinary income.
Please be aware, pursuant to IRC Section 72(t), an Alternate Payee is subject to any federal and state tax liability as a result of a distribution from the plan. However, pursuant to a properly drafted QDRO, an Alternate Payee is exempt from the 10% federal early withdrawal penalty if distributing funds from the Alternate Payee account prior to age 59 and 1/2.
Who is required to sign a Domestic Relations Order?
A state authority, generally a court, must actually issue a judgment, order, or decree or otherwise formally approve a property settlement agreement before it can be a “domestic relations order” under ERISA. The mere fact that a property settlement is agreed to and signed by the parties will not, in and of itself, cause the agreement to be a domestic relations order. There is no requirement that both parties to a marital proceeding sign or otherwise endorse or approve an order. It is also not necessary that the retirement plan be brought into state court or made a party to a domestic relations proceeding.
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Reference: ERISA §§ 206(d)(3)(B)(ii), 514(a), 514(b)(7); IRC § 414(p)(1)(B)
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