We get it—figuring out what to do with retirement plans during a divorce can feel overwhelming! It’s a big deal – some experts call it the trickiest part of the process.
But don’t worry! We’re here to simplify it and give you the tools you need to tackle it with confidence and clarity. You’ve got this, and we’ve got your back! 🔥👏
What is a QDRO?
A Qualified Domestic Relations Order (QDRO- pronounced “quad-ro”) is a special type of court order that allows retirement funds (ie 401k or IRA) to be divided between spouses. A QDRO can also be used to collect alimony or child support.
(For public retirement plans, it’s called a Domestic Relations Order or DRO.)
Why do I need a QDRO?
You need one because a QDRO is the only way to transfer money from one spouse’s retirement account to the other after divorce. Simply having a divorce decree that says one spouse is entitled to a share of the retirement funds won’t cut it—retirement plans won’t release a dime without a QDRO.
Some other key benefits –
- Without a QDRO, it is not possible to secure a lifetime pension for a non-member spouse.
- With a QDRO, benefits are paid directly, eliminating the need for ongoing interaction between former spouses
- A QDRO helps you avoid penalties and taxes that come with dividing retirement funds without the right legal paperwork. It makes sure the split is handled smoothly and in a tax-friendly way.
How do I file a QDRO?
There’s a lot to it, but we’ve boiled it down to 3 essential steps –
- Draft & Plan Review/ Pre-Approval – After your divorce settlement, the QDRO is drafted and sent to the retirement plan for review. Most plans can preapprove it to ensure everything checks out legally and fits their specific rules.
- Signatures & Court Approval – Once the draft is complete, both parties sign it, and file it with the court. Tip – Having everyone on board makes court approval a breeze.
- Submit to the Retirement Plan – After a judge signs off, the QDRO goes back to the retirement plan for implementation. Voila! You’re done.
When should I get one?
ASAP. Do not wait for “when I’m close to retirement age!” While there’s no hard deadline, waiting is risky.
Why? → Delaying could mean big financial and legal headaches if life throws a curveball, like a remarriage or the participant’s death. The process can take months, and unexpected changes might put your share at risk. Acting quickly secures your rights and gives you one less thing to stress about during an already challenging time.
Do QDRO laws change based on the state I’m in?
Yes, there is no one-size-fits-all QDRO.
QDROs are drafted based on marital property law of your state and the relevant plan law. In most states, anything you acquire during the marriage—like 401(k) contributions or any growth in value—is usually considered joint property. That means it’s up for grabs in a divorce.
Anything you earned or accrued before you said, “I do” might be considered separate property and stay with you. The key word here is might—your state’s laws and the specifics of your situation can change the game.
Also, those retirement funds? They’re not just for splitting between spouses. They can also be tapped for alimony, child support, or even to settle marital property rights for a former spouse, child, or other dependent.
*NOTE * Prenups allow you to plan ahead for retirement division. Want to decide who keeps the 401(k) in case of a divorce? Include it in your prenup. It’s also a great way to align with your estate plans, ensuring your 401(k) is handled exactly how you want in case of death. Think of it as a roadmap for protecting your future, no matter what happens.
Can I make my own?
Technically, yes you can draft your own QDRO. In practice, it’s not a good idea because it’s a tricky, detail-heavy process that leaves no room for error. No two QDROs are the same. Precision is key – Even a tiny mistake in the language can lead to a rejection.
What if I use a template? → Templates from plans might seem helpful but often protect and prioritize the plan’s interests— not yours. QDROs must follow your state’s marital property laws and the rules of the specific retirement plan. Drafting a QDRO is not a DIY-friendly task. The level of detail required is best handled by someone with legal expertise.
* If you’re still thinking about doing it yourself, please make sure you do your homework! Laws vary by state, and every situation is different, so research is key. If you can, have a professional take a look at it. Either way, we’ve got your back! You know what’s best for you, and we support you every step of the way 💪
Remind me what a 401k is?
A 401(k) is a retirement account offered by many employers. If you’re lucky enough to have this benefit, here’s why it’s awesome:
- Your employer does the heavy lifting 👉 Your employer helps you set up the account, and many even match your contributions (hello, free money!). Sadly, only about 44% of Americans have access to a 401(k)—so if you’re in that group, take advantage!
- Growth your wealth with little effort 👉 You contribute $$ from each paycheck, your employer may chip in, and then the magic of compound interest makes your money grow over time.
- A 401(k) helps you save on taxes in two ways:
- Pre-Tax Contributions – You put money in before taxes are taken out, lowering your taxable income for the year. (This is for traditional 401(k)s, not Roths.)
- Tax-Deferred Growth – Your 401(k) earnings grow without being taxed until you withdraw the money later!
When it comes to YOUR financial future, don’t leave it to chance. 🔥 🔥
Dive into our 👉 RESOURCE LIBRARY to learn more or 👉 FIND YOUR PROFESSIONAL and get started with an expert today!