You’ve probably never heard of a qualified domestic relations order (QDRO) — but it could become very important to understand more about QDROs if you’re getting divorced.
Divorce involves a lot of financial negotiations, particularly if there are a lot of assets involved. Here are some basics you need to know about QDROs to get started:
What is a QDRO?
Qualified domestic relations orders are legal documents that are presented to the court as part of a divorce settlement. They’re independent of the rest of a couple’s divorce paperwork. Once the court accepts a QDRO and signs off on it, that order allows the administrator of a pension fund or retirement plan to disburse part of that money to someone other than the plan’s official payee.
In other words, it’s the physical piece of paper that makes it possible for you to obtain any money out of your spouse’s retirement funds or pension.
Why do you need a QDRO?
Most people incorrectly assume that their divorce decree is enough to allow them to access their share of a spouse’s retirement funds. It seems logical because the divorce decree addresses the issue and spells out what’s supposed to happen.
Unfortunately, that’s not sufficient for the needs of the actual retirement plans involved in most cases. The divorce decree is essentially a court-approved agreement between two people — but it doesn’t officially direct the retirement plan’s administrator to do anything. That’s the purpose of the QDRO.
What else should you know about a QDRO?
The failure to obtain a proper QDRO toward the end of the divorce process could cost you. You might lose access to the funds if something happens to change their status before you can file. For example, your ex-spouse could violate the divorce agreement and take a loan out against his or her pension plan to fund a new home — and that could leave you without any options to get that money back.
If you’re seeking part of your spouse’s retirement funds as part of your divorce settlement, make certain that you talk with your divorce attorney about a QDRO before negotiations are over.