Division of assets during a divorce can be complex. With all the intricate processes and documents, you may end up not pursuing certain things that can benefit you. And one of them is a qualified domestic relations order (QDRO).
A QDRO allows an ex-spouse to pay child support, alimony or marital property rights from their retirement plan. However, you need to prepare this order to be eligible for its benefits. Here is why you may need a QDRO in your divorce:
You receive benefits efficiently
Child and spousal support can be negotiated in some situations, for example, when your ex-spouse can no longer pay them. However, this may not be a major issue with a QDRO in place since their retirement plan will cover such payments.
Using a QDRO is possibly one of the smoothest ways of transferring assets. Once an amount is agreed upon, both spouses can carry on with their lives, each knowing what is required of them, without attending multiple meetings.
These can be tax-free funds
When you receive funds from your ex-spouse’s retirement plan, you can roll over tax-free all or a portion of the distribution into a qualified retirement plan. Further, your ex-spouse may also not be subjected to early withdrawal penalties.
However, you may be taxed when QDRO funds are transferred into another retirement account. A QDRO distribution paid to a child or another beneficiary, other than the former spouse, may also be subject to taxes.
You can prepare a QDRO at any time during your divorce, but it is advisable to do it early. Note that your ex-spouse may also want to protect their pension from many extras. For this reason, it will be best to approach this process amicably. You should research the QDRO matter to make the right calls.