People who are divorcing or approaching divorce in California know that the process can be stressful in many different ways, including financially. According to a survey by the American Academy of Matrimonial Lawyers, the most common points of contention in divorce are alimony, pensions and retirement accounts, and business interests. In cases where the couple will be dividing assets held in workplace retirement plans, the parties must use a qualified domestic relations order.
A QDRO is required in cases where both spouses are entitled to a share of a traditional pension plan or a 401(k). It is a separate document from the divorce agreement. It should be reviewed by the parties to the divorce and their attorneys prior to its submission to the court. The QDRO should reflect the intents of the divorcing parties. In cases where 401(k) assets are transferred into an IRA via trustee-to-trustee transfer, the details must be set forth in the QDRO; it will usually not be a taxable event for either party.
In cases where retirement plan assets are held in IRAs, a QDRO is not typically required. Instead, with regard to IRA assets, the divorce decree will spell out the amounts and timing of division. People should be careful dividing assets themselves, even if a QDRO isn’t required. Funds should not be withdrawn from an IRA and then given to an ex-spouse, for example, as that may be a taxable event.
When there are workplace retirement accounts to be divided, an attorney with experience in divorce law may be able to identify assets or negotiate the terms of property division. An attorney might create a QDRO to divide 401(k) assets or argue on behalf of the client during family court proceedings.