Benefits and limitations of QDROs

On Behalf of | Oct 22, 2021 | Divorce |

When a couple divorces, there is a process that allows a spouse or dependent to benefit from the other’s pension plans. A Qualified Domestic Relations Order (QDRO) is a court order that stipulates a portion of a retirement plan be paid or assigned to another if a Missouri couple divorces. This document is usually used to transfer retirement money to a former spouse. QDROs are helpful, but they also have many complexities.  

Possible QDRO benefits 

The divorce process can be difficult in some cases, and anything that helps facilitate things to move forward more efficiently and seamlessly is welcome. A QDRO can accomplish that regarding the transfer of certain assets. There is also no doubt regarding the transferred amount, and things that are clear cut help to keep disagreements to a minimum. A former spouse will have some retirement funds thanks to a QDRO order, and those funds aren’t taxed if they’re put into another retirement account. Also, there is no IRS penalty for an early withdrawal when transferring retirement assets to a former spouse.  

Possible QDRO limitations 

A QDRO can’t transfer retirement plan assets if another QDRO is in existence and promises funds to another alternate payee. In other words, if this is a second divorce, those pension assets likely went to the first former spouse. Also, there is no adding new benefits for the benefit of the former spouse if they are not offered by a retirement plan. Contributions made for years prior to the couple being married would not be part of the QDRO. If the participating spouse wanted to keep his or her retirement plan benefits intact, he or she could offer other assets instead, such as savings or the family home. 

QDROs can be complicated to understand. They can be a beneficial part of the division of a divorcing couple’s marital assets, or they can be limiting, depending on a couple’s unique circumstances. Getting the advice of a Missouri lawyer, regarding assets like pension plans, may be wise before moving ahead with a QDRO.