One important issue many divorcing couples deal with is how to divide up their retirement plans. This can be a complicated process, and in many instances a judge has to issue a Qualified Domestic Relations Order (QDRO) to split the contents of a retirement account between the spouses. QDROs have important aspects that couples need to consider, since there are many mistakes people can make while composing a QDRO.
First, CNBC points out that a QDRO is not a part of a traditional divorce settlement. Judges issue QDROs separately from a divorce settlement and may create them at the same time of the settlement or at a date following the divorce. Understanding this is critical because some spouses may assume that their divorce settlement covers all of their asset divisions. This may not be the case when it comes to some retirement accounts and spouses could lose out on a lot of money without a QDRO.
Also, while QDROs are used for many types of retirement plans, courts do not issue them to divide every kind of retirement account. Commonly, QDROs divide up employer based pensions, which include 401(k) plans and retirement pensions. However, QDROs do not divide many IRAs. Instead, courts usually split up IRAs as part of a divorce decree.
According to Forbes, QDROs are not simple documents. When dividing a retirement plan, there are many financial laws and regulations that may apply. Also, the exact time when a QDRO takes effect is vital. Unexpected events, such as the death of an ex-spouse, may derail the implementation of the QDRO. Because of these possible complications, professionals are the better choices to draft a QDRO.
A person may also have to take additional steps to ensure a QDRO is successful. If an ex-spouse should die before the QDRO goes into effect, the surviving spouse may lose out on retirement benefits. Some people guard against this possibility by taking out life insurance on the divorced spouse, sometimes for just long enough until the divorced spouse has fulfilled the needed financial obligations, or for a longer period.