A QDRO Can Protect Your Retirement Assets After Divorce
A Qualified Domestic Relations Order (QDRO) is an order that needs to be included in a divorce settlement agreement to provide former spouses their share of Erisa-qualified retirement assets. In order to receive your fair share of assets saved during the years you were married, a QDRO will ensure your rights under these retirement plans are fully protected. QDROs should be prepared by a qualified family lawyer who understands the tax implications and other consequences of dividing the full range of retirement assets.
Connie Buffington, a family lawyer with the Atlanta office of Boyd Collar Nolen & Tuggle, offered the following tips to FOXBusiness.com on what divorced retirees need to know regarding their rights involving their ex-spouse’s employee benefit or pension plans.
Boomer: What are some of the costly mistakes when dividing retirement assets?
Buffington: There are three common mistakes when dividing qualified retirement assets (e.g. 401(k) plans) and non-qualified retirement assets (e.g. IRAs) during a divorce: not considering potential tax consequences and liabilities; not defining the method by which a traditional pension plan is to be divided; and not accounting for the treatment of investment gains or losses in the context of the division.
Boomer: When is a QDRO needed and when is it not needed?
Buffington: QDROs are required to divide assets held in ERISA-qualified plans in connection with divorce. They can also be used to facilitate alimony and child support payments.
They’re not required to divide IRAs or non-qualified plans, such as deferred compensation plans, supplemental pension plans, long-term incentive plans or stock ownership plans.
Boomer: How would you craft a QDRO in order to avoid tax consequences?
Buffington: The QDRO (which by definition, applies only to qualified retirement plans) should be written to provide that 100% of the alternative payee’s benefit shall be distributed or rolled over to an eligible retirement account designated by the alternate payee. As long as he or she refrains from requesting that all or part of the benefit be distributed in cash, the transfer of assets will not be taxed.
Boomer: What happens to the QDRO when the ex-spouse dies?
Buffington: What happens when the ex-spouse dies will vary with the specific terms of each qualified plan, making this a critical and complex issue that should be addressed by the terms of the QDRO.