Divorcing spouses are usually already prepared to divide the marital property and debts, but many couples fail to think past the usual homes, vehicles and family pets when it comes to assets. You may have a valuable piece of marital property hiding in your spouse's retirement account, and you can access those funds without penalty if you do so during your divorce process. Read on for a better understand of how a Qualified Domestic Relations Order (QDRO) works and how you can ensure that you get your part of this valuable marital asset.
The Qualified Domestic Relations Order
If your spouse has been depositing funds into certain types of retirement accounts, like a 401(k), you may already know that those funds cannot be withdrawn until retirement or you may risk the punishment of a hefty penalty fee. During the divorce process, however, the funds become subject to marital property rules and can be dispensed to the non-owning spouse without penalty. Funds deposited prior to marriage are off-limits, but any funds deposited during the marriage is fair game for disbursement.
It's important to begin your QDRO preparations early in the divorce process since it must be signed by the judge before your divorce is final. The QDRO documents, once approved by the judge, are filed with the plan's administrator. Another consideration when it comes to the timing is the way a QDRO can influence the division of other marital property. Depending on the amount available, the funds in a retirement account could play a part in how all the marital property is divided. For example, a couple may choose to allow one party to take the bulk of the retirement account instead of their part in other property, like the family home.
Not Just Cash
It's important to point out that the funds that are disbursed using a QDRO should not be considered cash on hand. The funds are meant to provide the recipient with their own retirement opportunity (or at least to add to an existing retirement account). With that in mind, you should realize the funds you receive are subject to taxes since it is considered income by the IRS. You can, however, prevent those taxes by "rolling" the funds over into your own qualified account within a certain period of time. It's also important to know that some funds don't disperse in a lump sum; instead, the funds come in monthly amounts. Every fund is different, so be sure you know how the fund treats the QDRO before you come to other marital agreements.
For spouses who've elected to stay home from a job and raise a family, a QDRO is a can't-miss opportunity to help even the playing field. For more information on QDROs check out an attorney such as Karie L. Sanoba, Attorney at Law.