Serving Rome, New York residents with legal issues

Do the courts provide a QDRO for couples splitting 401(k)s?

On Behalf of | Oct 5, 2024 | Qualified Domestic Relations Order

Spouses who have contributed to 401(k)s and similar retirement savings accounts during their marriages often have to address their savings when they divorce. Some couples work out property division solutions that allow one spouse to keep the entire 401(k) in consideration of them taking responsibility for more marital debts or their spouse receiving other valuable marital property.

Many times, divorcing couples with well-funded 401(k)s have to divide the account to achieve an equitable property division outcome. Those who use qualified domestic relations orders (QDROs) can split the contents of a 401(k) into two separate accounts without triggering penalties or increasing their tax burden for that year.

Typically, a QDRO has to reflect the final property division order entered by a judge. Do the courts provide divorcing spouses with the QDRO that they need to split a 401(k) without penalties?

An attorney must draft a QDRO

Many people do not understand the process of drafting and recording a QDRO. Some people believe that the account division process is automatic or managed by the courts. However, that is not true.

The courts only establish the final property division order. The spouses have to follow through on that order by fulfilling the terms it imposes. Typically, a lawyer representing one of the spouses drafts the QDRO after reviewing the final property division decree.

From there, it is necessary to have the document reviewed and signed by both spouses. Then, the spouses submit the document to the financial professional managing the 401(k). Some people end up with less of their marital retirement resources than they deserve because they fail to draft a QDRO.

Their spouses might make inappropriate withdrawals that diminish the account balance and reduce how much they receive when they eventually correct their previous oversight. In some cases, the attorneys representing the spouses may not advise them on the need to draft a QDRO or may not handle that process.

Getting the right support when preparing a QDRO after the end of divorce proceedings can be as important as requesting a fair share of retirement resources during divorce. People who learn about who creates and approves a QDRO can more effectively preserve their interest in marital retirement resources.

Archives