Do I Need a QDRO in My Divorce?
If you are considering filing for divorce in Orlando, or if you and your spouse are in the early stages of your divorce, you likely know that any marital assets will be distributed as part of the property division process. Some marital assets are more difficult to divide than others, resulting in complex property division. For example, some property can be complicated to value because of fluctuating market values, while the distribution of other types of assets can be complex because they are held in the name of only one of the spouses despite clearly being classified as marital property. One of the types of property that often falls into this latter category is the retirement account.
Many retirement accounts are classified as marital property and thus are divisible. If your divorce is likely to include the division of retirement accounts, you should learn more about the qualified domestic relations order (QDRO) and whether you need one—or should have one—in your Florida divorce.
What is a Qualified Domestic Relations Order?
A QDRO is a legal order that can be used to divide assets in divorces, and in particular retirement accounts. According to an article in The Balance, QDROs are extremely common in divorces where the parties go through property division and one or more retirement accounts will be divided or distributed between the parties. For some types of retirement accounts, it is helpful and financially beneficial but not necessary to have a QDRO. For the division of other types of retirement accounts, a QDRO is necessary.
A QDRO can do a couple of important things with regard to the division of retirement accounts. Most significantly, having a QDRO in your divorce can allow you to transfer money out of a retirement account without paying the penalty associated with early withdrawal. As you may know, most retirement accounts charge a penalty (10 percent) if you take money out of the account before you reach the legal age of retirement. With a QDRO, you can avoid paying that penalty. For example, if Spouse A was the primary earner in the marriage and has a retirement account, while Spouse B was a stay-at-home parent and does not have a retirement account, the court may determine that Spouse B is entitled to a certain percentage of Spouse A’s retirement account. Without a QDRO, Spouse A likely would need to pay the penalty to transfer those funds to Spouse B.
However, it is important to know that a QDRO does not necessarily prevent you from having to pay taxes on the amount withdrawn. Typically, if one spouse transfers funds into a retirement account owned by the other spouse, the amount is not taxed. However, if the transfer is made into the other spouse’s bank account, for example, that amount will be taxed.
Do I Need a QDRO?
Now that you know more about what a QDRO is and how it works, you likely are wondering: do I need a QDRO? If your marital assets include retirement accounts of any type, a QDRO likely will be extremely beneficial. Even if only a portion of a retirement account is classified as marital property, a QDRO can still help to distribute the funds.
However, some retirement accounts actually require a QDRO. Any retirement account that is covered by the Employee Retirement Income Security Act of 1974 (ERISA) requires a QDRO to divide the benefits.
Seek Advice from an Orlando Divorce Lawyer
If you are considering divorce and have questions about property division and QDROs, an Orlando contested divorce attorney can assist you. Contact Anderson & Ferrin for more information.