Spouses who want to ensure joint retirement assets are divided fairly during the divorce process should incorporate a QDRO into their settlement.
During the divorce process, many spouses in Pennsylvania worry they will not receive their fair share of retirement assets once a property division agreement has been solidified. One of the ways to ensure ERISA-qualified retirement assets are divided fairly during the divorce process is by including a Qualified Domestic Relations Order in the divorce settlement.
What is a QDRO?
According to the IRS, a QDRO is an order for a retirement plan to pay marital property rights to a former spouse. These orders must contain specific information, such as the percentage or amount of the retirement plan's benefits to be paid to the former spouse.
When is a QDRO needed?
During the divorce process, a QDRO is needed when spouses need to divide assets that are being held in an ERISA-qualified plan. In addition to dividing these important retirement assets, these orders can be used to facilitate child support payments and alimony payments.
A QDRO is not needed to divide the assets held in an IRA or a non-qualified plan. For example, in order to divide the assets in a long-term incentive plan, stock ownership plan, deferred compensation plan or supplemental pension plan, a QDRO is not necessary.
Can tax consequences be avoided?
When a QDRO is being written, tax consequences can be avoided by ensuring that 100% of the benefit provided to the former spouse is moved into an eligible retirement account. As long as the former spouse does not request the benefits to be provided in cash, transferring the assets from one retirement account to another will not result in taxation.
What happens when the former spouse passes away?
When an ex-spouse dies, what happens to the benefits paid as ordered by the QDRO depends on the specification outlined in each qualified plan. This is an issue that should be addressed in the QDRO during the drafting process. For instance, the general rule for defined benefit plans is that if the ex-spouse dies before receiving compensation from the plan, the compensation goes back to the plan participant.
Seek the guidance of an attorney
Dividing assets during the divorce process in Pennsylvania, especially assets held in a retirement account or multiple retirement accounts, can be an overwhelming, stressful process fraught with emotion. Those who want to ensure their retirement assets are divided as fairly as possible during divorce proceedings should contact an attorney in their area for legal guidance and assistance.