Retirement accounts and pension plans can represent a significant portion of a Missouri couple’s assets. When a divorce occurs, these assets are typically taken into consideration and included as a part of the property division settlement. However, due to the nature of the ownership of these assets and the related tax implications, a QDRO, or qualified domestic relations order, may be necessary to protect and obtain assets as directed by the court.
A QDRO is necessary when one spouse will be receiving assets from the other spouse’s qualified retirement plan. This qualified retirement plan can take the form of a pension plan, a 401(k), a 403(b) plan, an employee stock ownership plan or other plan covered by the Employee Retirement Income Security Act, or ERISA. The QDRO must be presented to the plan administrator prior to any assets being transferred.
One benefit of the QDRO is that it allows the participant to transfer these required funds from the plan without paying the tax penalty for early withdrawal. Additionally, the participant will not be held liable for taxes on these transferred funds. These funds will be considered taxable income for the spouse, child or other dependent to whom they are being transferred. A QDRO can also pay survivor benefits to the former spouse.
It may seem that the QDRO is simply another form that must be filled out. In reality, anything dealing with retirement accounts, pension plans and taxes can quickly become complicated. Mistakes can be costly for a Missouri participant or alternate payee. Early in the divorce process, the individual will want to make his or her attorney aware of any possible qualified retirement plans.