Do I Need a QDRO to Divide Retirement Assets in My Divorce?

 Posted on October 25, 2023 in Divorce

A divorce will involve a variety of complex issues. As you work to separate your life from your spouse, you will need to determine how to divide your marital property. The decisions made about ownership of different assets can have a significant impact on your financial stability both immediately after your divorce and in the years to come. One area that requires careful consideration is the division of retirement assets. If you or your spouse have retirement accounts, such as a 401(k) or IRA, or if you earn pension benefits, you may need to use a Qualified Domestic Relations Order (QDRO) to divide these assets. An attorney who has experience addressing complex financial issues related to divorce can provide guidance on the use of QDROs and other aspects of the asset division process.

What Is a QDRO?

A Qualified Domestic Relations Order is a court order that allows transfers from retirement plans during a divorce without the requirement to pay taxes or fees for the early withdrawal of funds. It establishes an alternate payee's right to receive benefits payable under a retirement plan. In simpler terms, a QDRO ensures that both parties receive their fair share of any retirement benefits accumulated during the marriage.

When Do You Need a QDRO?

The need for a QDRO depends on the type of retirement account being divided. Generally, if you are dividing employer-sponsored plans like a 401(k) or pension, you will likely need a QDRO. However, individual retirement accounts (IRAs) typically do not require one. For these types of accounts, a similar method known as a “transfer incident to divorce” may be used to divide assets between spouses.

If you and your spouse have multiple types of retirement accounts or benefits, it is essential to consult with an experienced divorce attorney who can guide you through the process and determine which accounts require a QDRO. Your lawyer can also ensure that QDROs will be created and executed correctly, providing the administrator of a retirement plan with the information needed to transfer funds or pay benefits to an alternate payee.

The Benefits of Using a QDRO

A QDRO can ensure that retirement assets will be divided correctly. QDROs provide:

• Tax efficiency: By using a QDRO, transfers made during the divorce process are generally considered tax-free events at the time they occur. This means neither party will incur immediate taxes on the transferred funds, and they will not be required to pay penalties for withdrawing funds from an account before the account holder reaches the age of retirement.

• Protection of retirement assets: A QDRO ensures that funds in retirement accounts and pension benefits earned during the marriage will be divided fairly and equitably between both parties, protecting each spouse's financial future.

• Simplified process: Having a QDRO in place streamlines the process of dividing assets by providing clear instructions to plan administrators on how funds should be transferred and allocated. This helps avoid potential disputes or delays down the line.

The Importance of Consulting with an Attorney

Dividing retirement assets can be complex, and it is crucial to seek guidance from an experienced divorce attorney who understands the intricacies of QDROs. Your lawyer will ensure that all necessary legal requirements are met while helping you navigate through any potential challenges that may arise during the process.

As you work to address issues related to the division of marital property, your attorney will work closely with you to determine your goals and priorities regarding retirement and other issues that may affect your financial future. Your lawyer will advocate for your best interests while ensuring all applicable laws and regulations will be followed correctly when dividing your assets.

Contact Our Oakbrook Terrace Retirement Account Division Attorneys

If you are going through a divorce in Illinois, the team at Farooqi & Husain Law Office is here to help. We can handle complex divorce issues involving the division of retirement assets and other legal and financial concerns. Contact our DuPage County property division lawyers today at 630-909-9114 to set up a consultation where we can discuss your specific situation and provide personalized guidance tailored to your needs.