There are a variety of documents that spouses may need during and after a divorce. Property division matters often require specialized legal paperwork. Spouses may be subject to court orders restricting the liquidation of property or their access to shared lines of credit while the divorce is still pending. They may also need specific legal instruments to divide their property.
A qualified domestic relations order (QDRO) is a common document required when successful professionals divorce. Quite a few divorcing couples may need to work with an attorney to draft a QDRO after the courts finalize their property division orders.
What is the function of a QDRO?
The name of a QDRO does not provide much insight into its purpose. It is a special legal document used to divide retirement accounts and pensions. When either spouse has a pension accrued with their employer or a tax-deferred retirement savings account, a QDRO helps facilitate the division of that pension or account.
Early withdrawals from retirement savings accounts often lead to financial penalties. Spouses may lose an additional 10% of the amount withdrawn as a penalty for making a pre-retirement withdrawal. They also need to report the funds withdrawn as taxable income.
A QDRO approved by both spouses and the courts allows for the division of a pension, 401(k) or similar account without penalties or tax consequences. Typically, spouses must have a lawyer draft the document after the courts approve a final property division order.
Understanding the rules that govern the division of property in a high-asset divorce can help people make use of the tools that exist for their financial protection. QDROs can be invaluable for those who need to split retirement accounts or pensions when they divorce.
