Using QDROs to divide retirement benefits

Using QDROs to divide retirement benefits

| Jan 4, 2021 | Firm News

When you’re dividing property as part of your divorce proceeding, your immediate concerns may involve who will get the house or the car. However, you will also have to consider more intangible assets, such as retirement benefits or pension funds.

Dividing retirement accounts can be challenging. It’s not as if you can take out half of your 401(k) and move on. You will have to consider the tax implications and other potential issues. A qualified domestic relations order, or QDRO, is an effective means of dividing retirement plans.

A QDRO can be used for a number of plans

QDROs can be used to divide a wide range of retirement plans, including:

  • 401(k)s
  • Pension plans
  • Employee stock ownership plans

Early withdrawal of retirement benefits is likely to result in a significant tax penalty. A QDRO will help you avoid this financial hit. You should keep in mind that if you are receiving a portion of your ex’s retirement funds, the amount you receive is considered taxable income.

Will the entire retirement plan have to be divided?

In general, any contributions that you made to a retirement account during your marriage will be subject to division. Any amount that you put into an account before you were married will likely be exempt.

In some cases, you may not have to divide your retirement accounts at all. You might be able to reach an agreement with your ex. For example, you could offer additional assets that equal the amount of half your retirement account.

Whether you choose to establish a QDRO or to take another path when it comes to property division, you should always work closely with a skilled legal professional who can help you protect your interests.