Going through the process of a divorce presents a lot of questions about finances. While the divorce decree is an important document outlining the final determination about critical issues in the divorce, you might also need a qualified domestic relations order to officially explain the handling of retirement funds.
In order for the judge in a divorce case to sign off on a qualified domestic relations order, parties have to provide full disclosure of assets in order to determine what is part of the marital estate. After this has been determined, parties can use court-provided calculators or negotiate the split value of the IRA. Once this amount has been identified, the party receiving funds from the IRA would need to open a QDRO rollover IRA account.
When it comes to dividing the account, this can be represented by a percentage or a dollar amount. When the new account has been created, the QDRO needs to include the names of both parties, the amount being moved, to which account this amount is moving to, and the details of the old account as well. The signed order will need to be presented to both IRA custodians, so it is important that it is prepared properly.
Tips for Preparing a QDRO
It is strongly recommended that you use a professional to review your QDRO. If the document is not worded properly it could be rejected by the plan administrator or it could cause confusion down the line when a division date or amount is not clear. Having someone with experience reviewing your QDRO can make a big difference.
What is the Impact of a QDRO?
Once the court signs off on your QDRO, it becomes part of the total divorce order. The amount detailed in the QDRO for the IRA moves to the new IRA custodian once the QDRO is active. Parties then are responsible for the management of their own IRAs in terms of taking distributions, naming beneficiaries, or making contributions.
Avoid Common IRA Mistakes
Avoid the temptation to expedite the process by taking a liquidation in the same amount as the IRA. This means that a check would be handed over to the other party, but this can be a dangerous mistake because it makes the IRA owner liable for all taxes for distributed amounts. Even if the harm was not intentional, courts tend to look unfavorably on these kinds of rushed actions. Instead, hire someone to review your QDRO in full.