Understanding QDRO and How It Works

QDRO stands for qualified domestic relations order, and it is a court order that’s implemented to divide the retirement accounts of divorcing spouses in the division of marital property. A QDRO can play an important role in relation to preserving the tax advantages of retirement accounts while allowing their benefits to be distributed between divorcing spouses. Obtaining a QDRO is often complicated, which makes working with a dedicated Illinois divorce attorney who has significant experience successfully handling the division of complex assets in your best interest. 

QDROs: The Basics

As mentioned, a QDRO is a qualified domestic relations order that is issued by a court to allow retirement accounts that have tax advantages to be distributed between former spouses. Once the QDRO is issued, it affords you the right to your share of the retirement account or benefits in question. For example, a divorcing spouse with a 401(k) may keep their share of the account in the 401(k) while their soon-to-be ex rolls their share into another retirement tool, such as an IRA. 

Retirement Accounts

If you enter a marriage with a retirement account, the value of the account at that time is a separate asset, but the amount that the account grows in value over the course of your marriage is marital and must be divided between you equitably – or fairly in relation to the specifics of your marriage and divorce. The retirement account, however, is very likely in your name alone, which makes it more difficult for your divorcing spouse to obtain their court-ordered share.

Tax Deferment

Retirement accounts come with significant tax advantages that include deferment of taxes until you withdraw from the account at retirement age. Dipping into a retirement account early comes with significant financial consequences, but when the divorce court grants a QDRO, it allows you to make the division without triggering financial consequences. 

Obtaining a QDRO Is Not Automatic

QDROs can only be issued by a court, and they are not an automatic byproduct of divorce. Your skilled divorce attorney will determine if you’re eligible for a QDRO and will ask the court to approve your QDRO request. The spouse who seeks a portion of the other’s retirement account is generally responsible for filing the QDRO forms with the court. 

While you’re not required to request a QDRO prior to your divorce being finalized, doing so is a far more streamlined approach. 

Alternate Solutions

If you are entitled to a specific portion of your divorcing spouse’s retirement account – or vice versa – there are options other than a QDRO, including:

• You may decide to each keep your own retirement accounts.
• The spouse with the QDRO account can buy out the other spouse’s ownership in it.
• The spouse who is owed a portion of a retirement account can be awarded another asset as a replacement.

If none of these are financially viable, a QDRO is generally the best path forward.

Discuss Your Case with an Experienced Illinois Divorce Attorney Today

The respected Illinois divorce attorneys at WARD FAMILY LAW, LLC, have the legal savvy to protect your financial rights throughout the divorce process, including in relation to complex retirement accounts. Learn more by contacting us today.