The many uses of a QDRO in a divorce

Residents in Utah should learn how and when they might want a qualified domestic relations order when they get divorced.

Utah residents who may either be considering ending their marriage or possibly in the early stages of a divorce should learn about the qualified domestic relations order. There are multiple situations that might necessitate a QDRO and not having one in these times may cost people dearly in the form of taxes and penalties.

What is a QDRO?

A qualified domestic relations order is a legal order that allows 401K account owners to access their retirement assets for select domestic non-retirement purposes. As explained by the United States Department of Labor, a QDRO may be used by couples who agree to split one person's retirement account as part of their property division settlement.

How does a QDRO work?

The QDRO works by identifying the non-account owning spouse as legally able to receive funds from the account. Under normal circumstances this would not be allowed because the person who owns a retirement account is typically the only person who may receive money from the account. The benefit of doing this is that the account owner is then not viewed as taking an early withdrawal which would prompt the assessment of penalties. Also avoided by the account owner would be taxes.

The spouse who receives the money may be able to avoid paying taxes by reinvesting any funds received into another qualifying retirement account.

Is a QDRO needed for all retirement accounts?

Forbes notes that only certain accounts like 401K funds, pensions and other retirement accounts require the use of a QDRO. When splitting individual retirement accounts people would instead use what is called a transfer incident to divorce.

What else can a QDRO be used for?

According to the Internal Revenue Service, a QDRO may be used to establish a former spouse as an alternate payee for the purposes of receiving spousal support payments. Liability for taxation in this situation would be the same as for a property division settlement.

Spouses who must pay child support may also use a QDRO to allow money to be paid directly to their minor child , dependent or an approved legal guardian. In these situations, the account owner would retain the responsibility for paying taxes on money withdrawn to satisfy this order.

How can I learn more about the QDRO?

Divorcing spouses in Utah should always consult with an experienced family law attorney before making any final agreement. Getting the input of a lawyer at Kristopher K. Greenwood & Associates, LC, may offer insights into ways that could end up saving them valuable money.