If you are divorcing, consult with the administrator of your plan for details. You may need to file paperwork or take other steps. The alternate payee must be a spouse, ex-spouse, child, or other dependent.
Other alternate payees will not be considered. Your plan administrator may offer a standard form used by the plan. This will often be free and easy to fill out on your own. You don't have to use one of these model forms to obtain QDRO status. A lawyer also can draft a QDRO on your behalf. This may be worth the added expense. It can provide peace of mind that the order will be done the right way. The form drawn up must include:.
There is no one-size-fits-all approach to dividing assets through a QDRO. It all depends on the type of retirement plan, the type of benefits afforded under the plan, and the reasons for the division. As an alternate payee, you may be entitled to some or all of the participant's benefits under a retirement plan. A common approach splits benefits into two separate parts. The time and form of the payment that the payee chooses may be different from what the plan participant chooses.
A QDRO may afford you one or more options for how you take your portion of the distribution as the payee. This could include taking the money as a lump sum. A lump sum would require paying taxes on the distribution right away.
If the payee is a child or another dependent, though, the plan participant gets taxed instead of the payee. You also can take the money as an annuity and receive your portion in installments.
This can help spread out your tax burden. If you can afford to wait, the better move may be to leave the money in the QDRO k or another plan. If you take this option, the assets can keep growing tax-deferred until your retirement.
If you withdraw assets from a retirement plan that is not under a QDRO, you have to pay the penalty. In fact, a recent study showed that between and , the divorce rate among older adults actually doubled, and that in , about one in every four divorces occurred to people over the age of Unfortunately, though, dividing retirement accounts and pension plans is:.
Retirement funds added during the marriage are typically treated as marital property. Obviously, divorce changes every one of those plans and requires the careful scrutiny of all retirement accounts.
For example, retirement funds added during your marriage are typically treated as marital property. Although in some states, any increase in value of that separate property during the term of the marriage could be considered marital property. See my earlier post more details about the differences between marital and separate property. Any retirement assets that qualify as marital property can be divided, but the process by which these funds are divided depends upon a number of factors.
For starters, the court must adhere to federal guidelines when dividing funds in k , b and other similar types of plans, but state laws dictate how IRAs are divided. There are even more thorny issues to contend with when you need to divide a pension plan.
Also, military pensions, federal, state, county and city retirement plans have their own rules regarding division during divorce. Many women —and some attorneys, too! The QDRO must be completed and presented to the pension plan well before your divorce is finalized. Waiting to complete the QDRO until after the divorce is finalized is recipe for disaster!
These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. How the Process Works. Dividing the Property. Divorce and Your Children. Divorce and Retirement. Post-Divorce Finances. Legal Terminology A-E.
Legal Terminology F-Z. Table of Contents Expand. The Bottom Line. Key Takeaways A qualified domestic relations order QDRO is a court order used to divide certain retirement-specific assets during a divorce.
But because the qualified plan assets you receive under a QDRO are rollover-eligible, amounts that are paid directly to you instead of to an eligible retirement plan will be subject to mandatory withholding.
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