Many spouses elect to stay home and care for the children of the marriage, and child-rearing is a noble and important undertaking. Unfortunately, when it comes time to divorce you could be at a disadvantage if you gave up educational and career opportunities to be a stay-at-home mom or dad. The good news is that you may have the chance to play catch-up when it comes to your retirement planning by using a Qualified Domestic Relations Order (QDRO). The process for taking part in a QDRO begins during your divorce, so read on for more information.
What is a QDRO?
If your spouse has been sending some of their salary into certain types of retirements accounts, such as a 401(k), during your marriage you could be entitled to some (or all!) of those funds. Depending on your agreement with your spouse, you can withdraw funds from your spouse's account without having those funds subject to the usual punitive penalties. While you are entitled to the funds, the exact amount you can withdraw is subject to your property settlement agreement and how much your spouse agrees to allow you to have. Any monies on hand in the retirement account on the day of your marriage is off-limits for QDRO purposes, however.
Separate but Concurrent
The timing of your QDRO can be tricky, but don't wait for the divorce agreement to be final to initiate the order. It must be signed by your divorce judge before your final decree comes down. It should be noted that these orders must be approved by the administrator of the funds before the judge approves it, so leave enough time for processing the order. You may be wondering why the order must be complete before your divorce is final, but you should take into consideration that the retirement fund is considered marital property, and the disposition of the fund could influence how the remainder of the marital property is handled.
Beware the Taxman
These funds should not be considered as cash, though they may be paid in the form of a check. You can do whatever you like with the money, but if you fail to "roll" the funds over into another qualified retirement fund in your own name by the time your taxes come due, you will find yourself paying taxes on it. That's because the funds are considered income until it's properly invested.
Using a QDRO can be complicated, so speak to your divorce attorney early on in the divorce process. Be sure to contact an attorney that specializes in high asset divorce.
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