QDRO stands for Qualified Domestic Relations Order. QDROs are used to divide retirement accounts. Retirement accounts are usually tax deferred. If you withdraw money from them before retirement age, then you have severe tax consequences. Tax free savings is great for retirement, but causes problems when divorcing and dividing those accounts.
Beware the Tax Penalty
Retirement accounts are not like regular checking or savings accounts. You can’t just divide the contents and go your separate ways without paying a big tax penalty. If you cash out a retirement account to split, the spouse whose name the account is in is hit with 100% of the tax liability. Remember that divorces are governed by principles of equity, and one party taking the IRS hit is not fair or equitable.
Retirement Accounts Come in Many Forms
Every retirement account is with a specific company, like Charles Schwabb or Edward Jones. There are also special considerations for railroad retirement (Union Pacific), state employees (Arkansas Public Employees Retirement System), or teachers (Arkansas Teacher Retirement System). There are many different retirement account investment companies, and each company has its own approved forms and required processes.
Jurisdiction Over Retirement Accounts
The divorce court has jurisdiction over only the two spouses, and does not have jurisdiction over an in-law, bank or a retirement account investment company. This means that the judge cannot tell the company what to do or what forms to use. The judge in your case cannot compel any retirement account investment company to change its policies and procedures in order to accommodate your divorce.
Drafting a QDRO and getting it approved can be very frustrating for the parties and lawyers involved. They are complicated and time-consuming, and many attorneys do not want to handle QDROs for this reason. Keeping with our business model of providing quality services, Lion Legal does handle QDROs, albeit separately from the divorce. In fact, many clients come to us after the divorce is final to handle the QDRO only.
Who is responsible for the retirement account?
The QDRO is the responsibility of the party who is receiving the money. Jumping through all the hoops, including opening your own account for the funds to be deposited (so you don’t incur that big IRS penalty either), drafting and obtaining approval, then sending to the ex-spouse and the judge for entry can take weeks, but it’s worth it, because you then have your own retirement account that you can grow and depend on in the future.
We Can Help
Our attorneys are experts, and are here for you with straight talk, predictable cost, and superior services. We promise to tell you what the most likely outcome is up front, and to be open and transparent in our communications with you until your case is resolved.
Our approach to practicing law is revolutionizing the way law firms deliver legal services. Case evaluations are completely free. Call Lion Legal today at (501) 227-7627 or Email Us to set up a free consultation.