How a QDRO can protect you during divorce

During a divorce, couples will need to negotiate their property division settlement. As some Florida residents will experience, part of that negotiation includes dividing retirement accounts and pensions. Doing this incorrectly can have a negative financial impact, but residents can find protection for their interests with a QDRO.

Understanding a QDRO

A QDRO, or a qualified domestic relations order, is a court order or decree that establishes how a person’s retirement account or pension will be divided during a divorce. For it to be valid, it must be accepted by both the court and the retirement plan administrator. A QDRO is used for accounts that fall under the Employee Retirement Income Security Act, or ERISA, and are IRS tax-qualified. This includes 401(k) accounts and some employer pension plans. This, however, does not include IRAs or military and government pensions, which follow different rules.

How a QDRO protects you

A QDRO protects your rights when it comes to retirement accounts. Some of the protections offered include:

  • Establishing clear guidelines about the benefits you will receive and how they will be paid
  • Avoiding the 10% early withdrawal penalty from the IRS if you receive your share right after the QDRO is issued but before you reach retirement age
  • Helping your budget for the future with a realistic idea about the funds you will receive to support yourself during retirement

As the contributions to retirement plans made during the marriage are usually considered marital property, during the divorce settlement negotiations you will need to figure out how to divide the accounts. This can be a somewhat more complex operation if there are contributions before the marriage, which will be considered separate property, as well as contributions during the marriage. Additionally, the type of retirement account will also affect the outcome. A QDRO can both protect your interests and help you plan your future.