Splitting a retirement account during a divorce is often a painful process for the couple involved. Walking away from a marriage with only a portion of the savings you’ve accumulated can mean needing to make some drastic and unpleasant adjustments to your retirement plans, such as working for several extra years to rebuild your savings.
People often fight intensely over retirement savings accounts when dividing their property because those accounts represent a substantial amount of money. The good news is that the courts have special procedures in place that specifically help reduce the overall financial impact of dividing your retirement account as part of a divorce.
What is a QDRO, and how does it help?
For those who’ve never heard of a QDRO, the term may seem confusing. It is an acronym that stands for Qualified Domestic Relations Order. It is an order issued at the end of your divorce proceedings that instructs the person managing your retirement account to divide it for the benefit of both spouses.
A QDRO is helpful because it provides specific instructions to the plan administrator regarding how they divide the account, meaning the recently divorced account holder doesn’t have to handle all of those details. Additionally, the QDRO protects the account holder and their ex from incurring the penalties associated with early withdrawal from a retirement account.
Using a QDRO means that you won’t have to pay penalties at the time of the division of the account. Provided that you then wait to access the account until you reach the appropriate age, there will be no additional reduction of the balance of funds beyond what occurs when they split the account between you and your ex. In short, a QDRO simplifies dividing your retirement savings and protects you from penalties.