QDRO – Dividing up Retirement Accounts at Divorce

By Cathy DeWitt Dunn

Divorce can have dire consequences for women and their retirements if proper care is not taken.

During years of marriage, many women have focused on raising a family…instead of focusing on building personal wealth.

If you’ve spent your life taking care of family while your spouse earned all or the majority of the income, here’s something you need to know – QDRO.  A QDRO is a “Qualified Domestic Relations Order,” which provides a legal mechanism for dividing the retirement benefits of private pension and/or 401K plans earned by your spouse during the years of your marriage.*

If you find yourself at divorce’s door, do not assume that your divorce settlement will protect your rights to your portion of your ex’s retirement account.  Be proactive. Work with your attorney to enact a QDRO … and take control of your retirement future.

What’s at stake? Funds added to a retirement account over the course of a marriage are considered Marital Property. Therefore, if you are facing divorce, a QDRO is absolutely critical to helping ensure your retirement future. For many women, retirement savings may be the main source of income generation after a divorce is finalized. For some, retirement savings are the ONLY source of funds that can generate an income during retirement.  Obtaining a QDRO prior to finalizing your divorce can make the difference between a more secure retirement and a desperate situation in your golden years.

QDRO timing is critical.  It’s important that you have a QDRO in place well before your divorce is finalized. QDROs must first be entered into court and then reviewed by the plan administrator for compliance with ERISA or other applicable law. In addition, you’ll want a clear idea of the terms of the plan. For example, some private pensions will not do immediate lump sum payments. Presenting the QDRO to the pension plan administrator well before your divorce will give you ample time to negotiate the best settlement possible.

Rollover your money. Your QDRO arrangement will allow you to withdraw your share of the money and roll it over into your own IRA (as permitted by the terms of the original retirement plan). This allows you to take over the management of your money. If you follow proper rollover requirements, you can also postpone paying any taxes. You will owe taxes eventually once you start withdrawing funds during your retirement.

Once you receive your settlement, what next?  Taking control of your retirement assets is just the first step. We encourage you to give us a call today at (972) 473-4700 to discuss your options for putting your money to work. Over the years we have helped thousands of women learn how to protect and grow retirement assets, create income that can’t be outlived, and provide a financial legacy for future generations – all while eliminating stock market risk.

Meet Janet… Janet was a stay-at-home mom her entire marriage. After turning 48, she and her husband divorced. Because of her extended time out of the job market, Janet had few marketable skills and all of a sudden she had bills, with no job prospects in sight. She was desperate. However, Cathy and Matt were able to help by suggesting that she place a portion of her divorce settlement in an Immediate Annuity to generate much-needed income to help her get on her feet. They placed the remainder of her settlement––including assets secured through her QDRO––in a deferred Fixed Index Annuity to help set her up for a more comfortable retirement with guaranteed lifetime income and principal protection. Now, she’s got things under control.

*A QDRO is not necessary to divide an IRA or a SEP. Military pensions, federal, state, county and city retirement plans have their own rules regarding division during divorce.

For more see: Qualified Domestic Relations Order | QDRO