Define: Qualified Domestic Relations Order (QDRO)

QDRO is an acronym that stands for a Qualified Domestic Relations Order. But, what is that? A QDRO is necessary to divide a 401(k) following a divorce. If a Judgment and Decree grants to one spouse a portion of the other spouse’s 401(k), those funds can only be transferred to the other spouse through a QDRO. As long as the 401(k) funds are transferred through a QDRO and transferred directly to another retirement account, the recipient spouse pays no taxes as part of the transfer. However, if the recipient spouse wishes to receive a portion (or all) of the 401(k) to apply towards expenses, he or she will be required to pay income taxes on the amounts distributed based on that spouse’s effective tax rate for the year the funds are received. However, in such a case, the 401(k) funds that the spouse receives will not be subject to the 10% penalty that usually applies to early distributions or withdrawals of 401(k) funds.

Thus, if you are going through a divorce, you should do your best to not withdraw funds from your 401(k) prior to the finalization of the divorce, because any such distribution prior to the finalization of the divorce would be subject to a 10% penalty.

IRAs, PERAs, other pensions and other profit saving plans are divided through mechanisms other than a formal QDRO, which can sometimes simply be referred to as a domestic relations order (DRO). IRAs usually only require a “letter of intention” to divide as long as it is expressly provided in a divorce Judgment and Decree.

If your Judgment and Decree states that a 401(k) is to be divided between you and your spouse, it is important that the additional step of preparing and submitting a QDRO is completed. The QDRO process includes drafting a separate order to transfer the 401(k) funds, getting approval from both ex-spouses that they are in agreement with the proposed QDRO, getting approval from the plan administrator of the 401(k) that they also approve of the QDRO, getting all interested parties to sign the QDRO, filing the proposed QDRO with the Court and obtaining the judge’s signature and then submitting the fully executed and filed QDRO back to the 401(k) plan administrator for processing.

Seek Legal Representation for your QDRO

If you need a QDRO completed, contact Blahnik, Prchal and Stoll to determine whether we can draft the QDRO for your specific needs. If we are not able to prepare the QDRO, our firm has a network of other legal professionals who we can refer you to, to handle everything necessary to prepare and submit the QDRO.