If you are seeking a divorce in Pasadena and you or your spouse have a retirement plan, you should be aware of the role of a Qualified Domestic Relations Order, or QDRO, in the settlement process.
A QDRO is a legal document that allows a divorced person to receive a percentage of his or her ex-spouse's retirement plan. Essentially, it allows the divorced person to become a co-beneficiary of the ex's retirement plan.
If a divorced person has a QDRO, this allows him or her to withdraw a portion of the money and place it in his or her own pension plan or retirement account. However, the QDRO makes him or her liable for any taxes that are incurred during this process. Without a QDRO, a transfer of pension funds places the tax burden on the person who owns the account. If your ex is the one benefiting from your retirement account, he or she would receive the funds and you would be liable for all of the taxes. Additionally, if the money is withdrawn before you reach 59-1/2 years of age, you'd have to pay the extra 10% penalty for any early withdrawal.
A QDRO applies only to IRAs, Keoghs, 401(k)s, 403(b)s or traditional pension plans that are eligible for special tax treatment under the Employee Retirement Income Security Act of 1974. A QDRO must follow the guidelines that have been set up by the retirement plan administrator. It has to follow the rules of the original plan's benefits, so it can't order an increase in the funds that are paid out.
Since the process of preparing a QDRO is quite complicated, it is best to use a divorce professional with tax preparation experience to make sure the document contains all the necessary provisions to protect both you and your ex-spouse.
How Can We Help?
If you have questions regarding the division of marital assets in a divorce settlement, please call our office at (626) 683-8113 or email us at info@PasadenaLawOffice.com. Our Pasadena divorce attorneys are happy to help answer your questions and provide the assistance you need to obtain a fair settlement from the court.