Enhance Your Retirement Using A QDRO

When it comes to divorce, it often means that the couples ends up losing some financial benefits that come with being married. No longer can you file for taxes together, and you will find it more costly to live two separate lives. There is one financial perk of divorce, however, that it pays to know about. Read on and learn more about the qualified domestic relations order (QDRO)

Qualified Domestic Relations Order

The QDRO represents a way to access funds in a retirement account, such as a 401(k) that might otherwise come attached with a penalty. Retirement funds are meant for, well retirement, so under most common circumstances removing those funds will incur a penalty. This order means that because of your divorce, you are entitled to remove funds with no penalty.

What to Know

You should understand that the QDRO is more of a concurrent action with your divorce than an actual part of it. The QDRO has to be created and filed before the divorce is final, so the timing is important. A judge must both confirm that you are certain to have a final divorce decree and approve the QDRO separately from the divorce.

Any and all funds in a qualified retirement account is up for grabs, but only those that were deposited during the course of the marriage. To be clear, these are funds that benefit the spouse who does not have the retirement account. Retirement accounts are considered marital property, but the QDRO presents the legal way to remove funds from the owning spouse's account and provide it as a form of marital property to the other spouse. The actual amount taken out depends on the marital separation agreement or the judge's decision.

Funds From a QDRO are Income

If you are the receiving spouse, you can use the money for whatever you wish. You should understand, however, that this cash is considered income and will be taxable when April 15th comes around. The best way to handle this influx of cash is to "roll it over". This means depositing it before tax time into a retirement account of your own. You can either add it to a present account or create an account just for the QDRO funds.

Dealing with a QDRO can be complex and you will need to take action as soon as you can during your divorce. Speak to a divorce lawyer to learn more.