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A way to split retirement plans in divorce

You and your spouse have been busy making plans, including retirement plans. A divorce means you must now think about unmaking those same arrangements.

The good news is that many have been down the same road. Divorce is a legal procedure, and even in a stressful and less-than-amicable split, divorce courts have a tried and true way to do just about everything.

When a QDRO makes sense

In practice, it’s not often called a Qualified Domestic Relations Order but is usually instead referred to as a QDRO, often pronounced “cue-dro” or “quah-dro.”

Regardless, it’s a court order that approves an agreement to split retirement and/or pension plans between divorcing partners.

Retirement plans involving employee benefit packages or pensions are regulated by the federal Employee Retirement Income Security Act (ERISA), so the splitting up of such plans requires somebody who is duly authorized to approve any arrangement for divvying up a retirement plan.

For example, transferring funds out of a retirement account usually means an early-withdrawal penalty. An approved QDRO authorizes the division to go ahead without such penalties.

How a QDRO works

The key to how a QDRO achieves this division seems simple enough. The court officially recognizes an “alternate payee” who has certain rights to receive all or some of the benefits in the plan. Legally, only a spouse, former spouse, child or other dependent of the plan’s benefit recipient can be recognized as an alternate payee.

For the QDRO to be approved, it will need to be specific about what will happen to the assets. The specifics need to be negotiated in advance by the plan’s original benefit recipient and the alternate payee, presumably with the help of their respective attorneys.

The information should include the percentage or the dollar amount (or the method that will ultimately be used to determine the dollar amount) paid to the alternate payee. The plan will also need to give the specific number of payments or the specific time period that will be ordered by the QDRO.