Property division is among the major issues during divorce. For separating spouses, each may need guidance as to how to divide retirement plans such as 401(k)s or pensions. Granted, this is a complex task. However, the division of retirement investments can be resolved through a qualified domestic relations order (QDRO).
A QDRO is a legal document that allows the spouse to gain a predefined amount of the retirement savings. The amount paid out only includes contributions made during the marriage. For example, if one spouse made retirement contributions several years before the marriage occurred, the QDRO excludes those investments.
Plan administrator receives QDRO and follows its instructions
Often, the divorce attorney drafts a QDRO. However, in some cases, the divorce attorney may defer to an attorney who specializes in QDROs to accomplish this task. Upon completing the QDRO, the attorney sends to document to the administrator of the retirement plan. The plan administrator then approves the QDRO and trims out a specific amount of the retirement savings into a separate account designated for the spouse.
Here is an example. One spouse has a 401(k) plan that contains $250,000. However, $50,000 of that was already in the retirement plan before the spouses married. The QDRO will declare that the spouse with the retirement plan will retain that $50,000. The remaining $200,000 – considered marital assets – will be equally divided between the two spouses.
Once a spouse received those funds, the best option for him or her is to roll over those assets into a qualified retirement account. Do some research or seek the assistance of a financial adviser in knowing how to properly perform the paperwork. If you do not deposit the funds into an IRA, you will face certain tax repercussions. Please keep that in mind.
Gaining your fair share
You want to ensure that you receive your rightful amount of marital assets. Retirement plans and pensions hold significant assets some of which may belong to a divorcing spouse. With the guidance of an attorney and the help of a QDRO, you can gain your fair share.