When it comes to divorce, asset division is often complex. You and your soon-to-be-ex must decide how to fairly split shared assets like homes and savings accounts. You must also make decisions about other assets, which is far more complex.
When it comes to certain types of retirement plans or pensions, many couples use qualified domestic relations orders (QDRO) to divide them. Here are a few things to keep in mind when making decisions about these types of assets.
How do QDROs work?
Early withdrawals from a retirement account can incur penalties and higher taxes. A QDRO allows money to move from one account to another without incurring the added cost. However, if the spouse wants to receive the funds as cash or prefers to move them into a Roth IRA, they will need to pay taxes on the funds. Recipients can also choose to receive money in installments throughout their lives.
What benefits do they offer?
Without a QDRO, you cannot access your spouse’s retirement funds, even if your spouse obtained them during the marriage. Additionally, your ex-spouse could promise to provide your share of the assets upon reaching retirement age, only to go back on their promise when the time comes.
With a QDRO in place, you can split retirement funds fairly and equitably. From an emotional perspective, they also take a lot of stress and worry out of the divorce process. Some people even find that these orders improve their relationship with their former spouses, which is important when you co-parent together.
Not all couples need QDROs during their divorce. However, they are very helpful in certain circumstances, particularly when one spouse has substantial personal savings and the other does not.