A Qualified Domestic Relations Order (QDRO) is a court order issued as part of a divorce proceeding primarily to divide retirement or pension benefits between former spouses. It gives the alternate payee the right to receive all or a portion of the participant’s benefits payable under a pension plan, 401(k) plan or other qualified retirement plan
In California, retirement benefits earned from the date of marriage to the date of separation are considered community property and are subject to division between spouses upon divorce. This includes contributions made to retirement plans during the marriage, as well as any gains or losses.
The judgment for the dissolution of marriage, detailing how retirement benefits should be divided between the parties will be used as a basis for how the QDRO is drafted. It will specify how much the alternate payee will be paid, either in a percentage of a dollar amount.
Once the QDRO is drafted, it must be reviewed and approved by the administrator of the retirement plan. The plan administrator will ensure that the QDRO meets the requirements of the plan and complies with applicable laws. The family law court almost always requires this approval before filing the order into effect. The QDRO will be signed by both parties in the dissolution and the judge of the superior court.
Once the QDRO is approved and filed by the court, it becomes a legally binding order that must be followed by the retirement plan administrator. The administrator will then begin distributing benefits to the alternate payee as specified in the QDRO.
It’s important to consult with a tax professional to determine if there are any possible tax implications from dividing retirement benefits through a QDRO. Depending on the type of retirement plan and how the benefits are distributed, there may be tax consequences for one or both parties.
A QDRO is an important document for dividing retirement benefits between spouses ensuring that each party receives their portion of the retirement plan. The process can be started when a Petition for the Dissolution of Marriage is filed and completed with the Judgment. A retirement plan can be divided even though payments are not immediately paid. The alternate payee can be assured that their share is set up in their name and not have to worry about it later.
