Couples divorcing in Colorado and dividing up retirement accounts need to know about a qualified domestic relations order. If you are a divorcing couple splitting assets, you should know retirement accounts go through a different process. That is where the QDRO, a judicial order, comes into play.
The court divides up retirement accounts, such as pensions and 401(k) accounts, with the QDRO. According to regulations from the U.S. Department of Labor’s Employee Benefits Security Administration, plan administrators can only divide these accounts with a QDRO. After a divorce is final, attorneys draw up the QDRO to expedite the transfer of retirement savings.
Retirement savings earned during a marriage may be part of a divorcing couple’s marital assets. One spouse may get a portion of retirement savings. The spouse who earned the retirement savings is the participant in the QDRO process, and the other spouse, who receives a share of the account, is the alternate payee in the process.
One of the benefits of this order is that it does not levy early withdrawal penalties to either spouse. In most cases, taking money out of your retirement account before the age of 59½ increases your tax bill. If you are the spouse receiving your former spouse’s benefits, you have choices about what to do with the money. Some people choose to take their portion out as a lump sum. It is also possible to keep the benefits in the retirement account and let the shares grow over time.
Dealing with the complexities of retirement accounts is one part of divorce that confuses some couples. The QDRO helps streamline the process. This information is only for educational purposes and not intended as legal advice.