A qualified domestic relations order (QDRO) is a legal document that can divide assets. It is typically used with a plan where one person should be the payee, but another person is claiming that they have the right to be an alternate payee. If they do, the QDRO legally establishes this position to ensure that they get paid.
This can be a useful tool in many situations, one of which is divorce. Below is an example of how it could help, especially for couples with substantial assets.
Splitting up retirement benefits
A QDRO is often used when one spouse has a retirement plan. This could be an employer-sponsored investment portfolio, for example, or a pension plan. Either way, that person expects to get benefits from this plan once they retire. A married couple may have been expecting to use those retirement benefits together.
When that couple gets divorced, they have to divide assets. But a pension plan may be a future asset, in the sense that their spouse has not yet retired and is not yet receiving those payments. They can’t just split up the money because it hasn’t been paid out yet.
This is when the spouse who is not named on the plan could use a QDRO to establish themselves as an alternate payee. In the future, when their ex retires, they will get a portion of those retirement benefits. This portion will likely be based on the length of the marriage and the percentage of the benefits that were earned during that marriage.
It’s very important to know how to protect financial assets, and a QDRO is one way to do it. Those getting a divorce need to carefully consider their legal options.