While a divorce is an emotionally overwhelming endeavor, the process does bring with it a host of financial considerations for both parties, but mainly the primary breadwinner. This is why one of the most contentious and difficult phases of a divorce proceeding is the equitable distribution of marital assets, which also considers an individual’s retirement accounts.
For a lot of people going through a divorce, retirement accounts such as a TSA represent a big part of their lifetime savings while extending towards their financial portfolio. These accounts are considered by such individuals as a very important factor for their financial well-being and security.
However, during a divorce, dividing such accounts can prove to be a very complex undertaking. One essential solution that is applied to equitably dividing retirement accounts (those considered marital assets) is known as a QDRO.
QDRO is short for “Qualified Domestic Relations Order”. It is a mandated order by the circuit court providing a legal right to one spouse, entitling them to own a specific portion of the other spouse’s retirement money or in others a portion of the money sponsored by their employer that their spouse has earned throughout their married life.
A QDRO order is an integral aspect of the divorce process involving retirement accounts, legally enforcing the primary account holder to give up part of their retirement portfolio to their ex-spouse in line with the court’s recognition and stipulations.
Understanding the Distribution of Retirement Accounts During a Divorce Battle
During divorce, both party’s retirement accounts (if any) will be considered as marital assets subject to equitable division. However, calculating what portion each spouse gets after divorce is a rather complicated issue, which may also depend on the nature of the retirement account.
For example, it is important to understand that if one spouse got their IRA opened or started pooling their money in a 410(k)-account sponsored by their employer during the time they were married, both the IRA and the 401(k) account will be considered marital property.
However, the total amount of money in the retirement accounts up to the point of divorce will be considered as marital property, not anything after the final divorce decree has been issued.
Similarly, if one or both spouses started an IRA or 401(k) account before they were married, the amount of money calculated for distribution after divorce would start from the time they got married, not before.
How Do You Collect Your Share of Retirement Accounts After Divorce?
There isn’t one set rule for collecting your share of retirement accounts in a divorce. For example, if you’re what’s known as the “alternate payee” (meaning the spouse who didn’t open an IRA or wasn’t the employee with a 401(k) or pension), you could agree to get a lump-sum payment for your share of the account. Or you could wait until the plan starts paying retirement benefits down the road and get a share of those benefit payments.
Qualified Domestic Relations Order: The Process Explained
The process associated with a Qualified Domestic Relations Order comprises a series of very complex steps. This means that it is very important for you to seek the assistance of your divorce attorney. Considering this, mentioned below are some important steps that are involved in a QDRO.
The Initiation of the QDRO
A QDRO is a circuit court order that is filed during a divorce proceeding. The order mandates that a couple’s retirement account must be equitably distributed.
Creating the QDRO Documentation
This is a very critical step in the process that involves the expertise of your attorney. The professional will seek to go through the court’s rules as per the distribution phase, which must always be by the rules of the retirement accounts as each type of retirement account comes with a different set of rules. It is a sophisticated process.
QDRO Submission
Once the plan is drafted and finalized, it is then forwarded to the person who has administered the retirement plan who will then ensure that the plan meets all the particularities and is in line with the rules of the plan.
Distribution of the Retirement Account
After the plan is reviewed and green-lit, the money is then distributed between the spouses in line with the QDRO terms specified.
Some Important Elements of a QDRO Order
There are a variety of important things that a QDRO process comprises, each one being critical to the distribution of your retirement assets, such as:
Information such as Names and Contact
The Qualified Domestic Relations Order must contain the exact name and contact information of both ex-spouses.
Titles of all Retirement Accounts
The order should contain the names or titles of the retirement accounts in question so that they can be appropriately divided – such as the number of the account and the plan.
Distribution Details
The plan must conclusively mention the method of distribution of those retirement accounts including the percentage share mentioned by the court.
Scheduling for Payment Details
The QDRO must mention the scheduling details of payment disbursements and the nature of the payment – such as whether it will be distributed as a lump sum or monthly payments, etc.
Potential for Future Modifications
The plan must also conclusively highlight whether the payment plan reflects any future modifications of the nature of payments. For example, it must contain information about how the payment plan will be changed in the event of the payee’s or (the person receiving the payment) passing.
Is There Another Type of Court Order Used to Divide Retirement Accounts?
Apart from the widely used method of distributing retirement accounts during a divorce proceeding, such as the Qualified Domestic Relations Order, there is another method that is seldom used, known as a DRO or a Domestic Relations Order. While a QDRO is mandated by the court to recognize the beneficiary’s right to a portion of the payee’s retirement funds, a DRO is essentially a judgment or a decree that is made prior to a QDRO in line with the state’s domestic relations regulations.