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QDROs for Dividing Retirement Accounts

By Attorney and Mediator Julia Rueschemeyer

A QDRO (Qualified Domestic Relations Order) is a court order that tells a retirement account administrator how to divide a retirement account and award part or all of the account to the other spouse in the context of divorce. QDROs are required for division of all retirement accounts except for IRAs. In some states, QDROs are filed with divorce papers, while in other states, they can be filed long after divorce. It is always best, however, to prepare the QDRO at the same time as the separation agreement, as the documents must be compatible and the QDRO involves decisions that the divorcing couple might otherwise not understand or address in normal divorce agreement negotiations.

Retirement accounts are considered property, and the details of how they should be divided between divorcing spouses is normally described in the divorce agreement in the section about property division. A divorce agreement, no matter how clear and specific, however, is not enough for a retirement account or pension administrator to divide the account and pay part of

the funds to someone other than the person whose name is on the account.

A QDRO (or a DRO, for many state and local public employees) is required because of the federal 1974 Employee Retirement Income Security Act (ERISA), which was designed to protect the retirement income of employees. This helped prevent companies or others from fraudulently taking retirement assets from employees. It also, however, created a legal hurdle to sharing those retirement assets with anyone, including an ex-spouse who should be entitled to them. A QDRO is the required legal document that allows retirement account administrators to comply with ERISA and other labor laws but also share retirement funds with a divorcing spouse.

A QDRO is usually prepared by a QDRO lawyer or by an accountant or financial consultant. QDROs for 401k-type accounts (e.g., 403b, 457, Thrift Savings Plans) are relatively straightforward. They typically need to specify either a percentage of the account or dollar value that should be transferred from the account, and they should include specific dates and whether or not the transfer should include gains or losses in the account between the date of the QDRO and the date of the actual transfer.

A QDRO transfer of funds from one retirement account to another is non-taxable as it is simply a rollover between retirement accounts that is incident to divorce. It is also possible to use a QDRO to do a cash withdrawal to the alternate payee. The alternate payee, who receives the funds, will have to pay income tax on the withdrawn amount, but it is possible to avoid the normal 10% penalty for early withdrawal by filing an IRS form 5329. The funds must go directly from the participant's account to cash for the alternate payee to avoid the penalty. If the funds first go to the alternate payee's IRA, the IRS will charge a 10% penalty if they are withdrawn before age 59-1/2.

QDROs for defined benefit plans (traditional pensions, which are most common among public employees) are much more complicated. Pensions are financial instruments rather than accounts with a specific money balance, which can obscure their (often) high value. QDROs (or DROs, for many public employees) must not only assign a portion of future benefit payments to the alternate payee, they must also specify what happens with future, post-divorce contingencies: What if the pension participant dies before retirement? Dies shortly after retirement? What if the alternate payee remarries before the participant retires? Etc. If you have a defined benefit pension plan, you should consult with a QDRO specialist before finalizing your divorce agreement.


Attorney Julia Rueschemeyer specializes in Massachusetts divorce mediation and Massachusetts QDRO and DRO preparation.

Attorney Julia Rueschemeyer can be contacted by phone at (413) 253-7484 or or Visit Web Site

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