Divorces involving couples who have interests in various assets can quickly become complex. By the end of the negotiations, both spouses are probably eager to move on with their lives. It is very easy for them to fail to take certain necessary steps at the end of the divorce process.
For those who have retirement savings included in their inventory of marital assets, drafting and filing a qualified domestic relations order (QDRO) is often a necessary step. Putting together a QDRO happens after the courts approve a final property division decree, which means that some couples fail to complete this important step.
What are some of the benefits of acting quickly to draft and file a QDRO?
Avoiding taxes and penalties
Spouses may attempt to divide the account improperly if they don’t work with an attorney to draft a QDRO. One spouse may make a sizable withdrawal from their 401(k), for example, triggering a 10% penalty. They may also have to cover income taxes for the amount withdrawn from the account. Creating a QDRO and submitting it to the party managing retirement benefits can help divide the account without taxes and penalties.
Preventing misconduct
The spouse who holds the account may count on the other failing to put together and file the QDRO. In that situation, they technically have control of the account indefinitely until the other spouse takes action. In some cases, spouses may take distributions from the account or otherwise diminish its value in the years following the divorce. When the other spouse finally realizes they need to draft a QDRO, they may receive far less than they initially could have received.
Truly finalizing the divorce process
Although working with a lawyer to draft a QDRO can feel like just one more obligation after months of stressful divorce matters, it may be the last major obstacle to overcome. People who handle the QDRO and retirement account or pension division can feel confident that they have fully settled the marital estate and can begin truly moving on with their life. They can also rely on the funds that they receive to establish a retirement savings nest egg as they look to the future.
Understanding the importance of filing a QDRO can help those in the process of finalizing a complex divorce or moving on with their lives after divorce. The sooner spouses complete the QDRO process after the courts approve a final property division order, the sooner they can close the book on this difficult chapter in their lives.