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How are retirement accounts divided in divorce?

The property division aspect of a divorce is sometimes a test in patience because of the complexities. Retirement accounts are one of the more difficult things to figure out in these cases. Not only do you have to determine the value of the accounts, you also have to ensure that you aren't going to face penalties when you have to move them around.

If you are dealing with certain retirement plans including 401(k) plans, you will need a qualified domestic relations order. This is a court order that outlines exactly what needs to happen to the account. It is specific and it helps to protect you from having to pay taxes and penalties when the account contents are handled in accordance with the court order.

What does a QDRO do?

A QDRO moves part or all of a retirement account from one spouse to the other when they divorce. This is done through a percentage basis and using a specific number of payments. It names the person who is receiving the funds as an alternate payee. This must be spelled out clearly in the order.

The order isn't going to mean that you get cash in your hands. In nearly every order, the funds will move to your own retirement account so you aren't tied to your ex any longer. To be legal, it must be signed by a judge and must be recognized under Employee Retirement Income Security Act of 1974 (ERISA).

What is included in the QDRO?

Besides the information about the asset transfer, the order must include the plan owner's name and the alternate payee's name. It also needs to include both parties' mailing addresses. The method of determination for the percentage and the number of payments must be included. It also provides the way that the payments must be made.

Are QDROs always followed?

A QDRO must be followed as it is written unless there is a problem with it. If there is something wrong, the plan administrator will notify you of the issue and how it needs to be corrected. Once this is done, it will be honored.

Remember that this is only one small component of the divorce process. Other assets and debts also need to be handled. Ensuring that all decisions you make are in your best interests can help you as you embark on your new life as a single person.

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