A QDRO is actually a Qualified Domestic Relations Order. A QDRO is a separate written order which is signed by the Judge in a divorce case and deals with the division of retirement accounts. In the majority of divorces, the parties often have retirement accounts such as 401k, 403b, 457 or other types of accounts which are to be split. If you take a distribution from one of these types of retirement accounts, then you would normally be taxed and depending on your age you would be penalized as well. A QDRO is the means by which accounts are split in a divorce without paying tax or penalties.
The QDRO typically specifies a dollar amount or percentage that the other spouse is entitled to. The QDRO also contains provisions regarding the treatment of any loans which are pending against the account. Once the QDRO is prepared and signed by the Judge, it is then sent to the plan administrator for the retirement account. A big benefit of the QDRO is that the spouse will receive their share of the pension or account directly from the plan administrator and do no need the cooperation of their former spouse.
QDRO’s can also entered when dividing pensions, even if the pension is not going to be received until several years in the future when the participant stops working and retires.
If a spouse is currently or will in the future receive a pension as a result of military service, then a certain document called a military retired pay division order will need be entered. The military retired pay division order is like a QDRO but has different requirements and provisions.
Preparing QDRO is no simple task and many family law attorneys will not prepare them. They will have separate attorneys be responsible for preparing the QDRO. The QDRO must be created in compliance with certain IRS code regulations and provisions of ERISA. If the QDRO is not prepared properly, then it will not be honored by the plan administrator.