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What Is A QDRO?


There is only one reason you have to know what a QDRO is. You’re in the early stages of a divorce. A QDRO stands for “qualified domestic relations order” and it applies to retirement funds and asset distribution in divorce.

The QDRO is an order that authorizes a judge to split the proceeds of a retirement fund among the individual parties.

Retirement funds are among a special class of funds that cannot be accessed until a certain time has been reached. So, what happens if you want to split up your retirement account? Typically, you’d have to cash out the account and take a loss on the value. However, if you’re in the midst of a divorce, you can split the account without losing the value.

A QDRO only involves certain types of retirement plans. IRAs, for example, do not require a QDRO.

What retirement plans require a QDRO? 

  • Private pension plans
  • 401(k)s
  • 403(b)s
  • 457s
  • ESOPs (employee stock ownership plan)
  • Defined benefits plans

What happens to the retirement plan after the QDRO? 

The plan is divested. However, the major benefit of the QDRO is that you do not incur penalties for divesting the retirement account. In most cases, you would. However, the QDRO allows divorcing couples to retain the value of their retirement accounts. The money can be rolled over into another retirement account or into a bank account. However, if the money is disbursed in cash, then the beneficiary would be required to pay income taxes on that sum. A beneficiary would not be required to pay taxes on retirement funds transferred into a retirement account. At least not yet.

Beneficiaries may opt to receive lump sum payments, installments, or transfer the funds to another retirement account.

Do I need a QDRO? 

You don’t need a QDRO, but most individuals will opt for one if they have substantial assets tied up in a 401k or related retirement account. These assets are subject to distribution under Pennsylvania state law so long as they were acquired during the marriage. The QDRO helps you divest the retirement account without incurring the 10% penalty imposed by the IRS. It also streamlines the process of divesting the account, which would otherwise be more complicated.

Do I need a lawyer to file a QDRO? 

It may be self-serving to answer this question in the affirmative, but when you’re dealing with lucrative retirement accounts that you’ve spent your lifetime paying into, you want to ensure that they are treated with the utmost respect and care. A Pennsylvania divorce attorney can help you file a QDRO and protect your retirement accounts from early disbursal penalties.

Contact a Pennsylvania Divorce Attorney Today 

Lauren H. Kane represents the interests of Pennsylvania couples seeking divorce. Call a Philadelphia family lawyer at our office today to schedule an appointment and we can discuss your future goals immediately.

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