Don’t Overlook Your Spouse’s Retirement Plan During a Divorce – Understanding the QDRO

Divorces are complicated, and it’s easy to focus on making sure you get a piece of big assets, like the house, your investment accounts, and the vehicles. Don’t overlook the retirement accounts! Retirement accounts can represent a huge asset, but many spouses don’t think about them, especially if retirement is 10 or 20 years away. That could be an incredibly expensive mistake, especially because it will be extremely difficult to go back and fight for a piece of your spouse’s retirement account after the divorce is complete.

How Much of My Spouse’s Retirement Can I Get?

States divide marital assets differently, but regardless of which state you live in, you are entitled to at least a portion of everything your spouse earned while you were married. (Heads up! If you are the one who has contributed to the retirement account, then they have a right to get part of yours.) This includes all the money that put into a retirement account. If you live in a community property state, such as California, you are entitled to half the value of all the money he put into the account and its earnings during your marriage.

Depending on the length of your marriage and how much your spouse stashed away, that could represent tens of thousands of dollars or more. This money could be a lifesaver as you begin your post-divorce life.

What is a QDRO?

You won’t just be able to ask your spouse to hand over half of their retirement account to you. In order to get your fair share, you’ll have to submit a special document to the court. The type of document you submit will depend on the type of retirement or pension account your spouse has. If they have a retirement plan sponsored by a private employer, you’ll submit a Qualified Domestic Relations Order (QDRO).

You’ll have to fill out a different order if your spouse works for the military or is a government employee.

In a nutshell, the QDRO will instruct your spouse’s retirement plan administrator to provide you with a certain amount or percentage of the funds from your spouse’s retirement account.

How a QDRO Works

You’ll want to work with an experienced QDRO professional to draft a QDRO, which you will then present to the court. When the court qualifies the order, it will go to your spouse’s retirement plan administrator. (Note: If your spouse has multiple retirement account plans, you’ll need to fill out a separate QDRO for each one.)

The administrator will then review the order to ensure that it meets their standards. Since there are hundreds of thousands of different retirement plans out there, you’ll definitely want the help of a savvy QDRO professional to help you fill out the order correctly.

How Will I Get the Money?

You are in luck! You actually get to decide how you want to receive the payout from your spouse’s retirement account. If you need money to buy a home or car after the divorce, you may consider taking some, or even the entire amount, as a lump sum.

The good news is that you won’t face the 10% early withdrawal if you use the QDRO. The bad news is that they will withhold at least 20% in withholding taxes for the federal government and possibly more for state taxes, and you may owe even more at tax time. Since your spouse didn’t pay taxes on the money when it went into the account, you’ll have to pay them now.

You might want to consider rolling the money into an IRA so that you can save for your own retirement. You probably have a lot of bills to pay as part of your divorce and your rebuilding period, but make sure you take care of your future, too!

Worried that you might be missing out on more big assets during your divorce? Then talk to experts before you start down the divorce path.

3 thoughts on “Don’t Overlook Your Spouse’s Retirement Plan During a Divorce – Understanding the QDRO”

  1. My ex is electrical contractor owns company but annuity is through local union we have a QDRO I was given paperwork giving me my options for rollover or withdrawal from union regarding 50% of his annuity I ended up paying all of QDRO

    Financial company reps union went ahead helped me transfer money to my own account 4 weeks later I found out by contacting union benefits office contrary to the paperwork provided I could not touch any funds via rollover until ex was 55 this is found no where and only is told to me verbally don’t they have to provide the rules in writing this is now going on two years

    1. I do not know what you were provided in the paperwork that was given to you or whether it included everything that needed to be disclosed in writing. But I do know that the general rule is that the plan is not required to provide any benefit to the alternate payee (that’s you) that they weren’t required to provide to the employee. So if the plan provided that the employee couldn’t receive payments until they were 55, you would be bound by that provision. As part of the paperwork you likely received access to the provisions of the plan, so you can look there to verify that is what the plan provided. Likely it is, since that is a pretty standard provision.

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