How QDROs are used to split retirement accounts during divorces

 Posted on March 01, 2020 in High Net Worth Divorce

You’ve spent years building your retirement funds for the future. Now, they are a healthy portion of your portfolio. Unfortunately, a divorce may divert some of those hard-earned funds for years to come.

Dividing retirement accounts and pensions rank second on the list of the most contentious issues during divorces, according to the American Academy of Matrimonial Lawyers. (Spousal support is the most fought-over issue and dividing business assets the third.) An experienced divorce lawyer can explain how best to divide your retirement assets, but here is some information about how a qualified domestic relations order (QDRO) can help.

Planning payouts with a QDRO

QDROs are used to divide retirement assets during divorces. How a QDRO splits assets can have a big impact on how intertwined your benefits will be going forward:

• Sharing: You can add your spouse's name to your account, tying their interests to yours. They likely won’t be able to collect any payments until you meet the requirements, like leaving a job or retiring altogether.
• Transferring: Your spouse could want to roll over some retirement funds into an account they’ve already established. The QDRO can assign a piece of your accounts to be broken off and put into this separate holding, and the funds will act under the rules set aside there.
• Creating: A percentage can also move to a new account that stays under the same administrator as yours. Your spouse may be able to choose how the plan pays them without regard for your working status.

There is no perfect fit across the board, and each plan will have to fit your specific circumstances and the conditions set by the court. For these reasons, forming a compliant QDRO can be a tall order, but getting it right can help maintain your plans for the future.