What is a QDRO in a California divorce?
If you are getting a divorce in California and want to get your fair share of marital assets, you should ensure your right to any relevant retirement benefits. In some cases, you may want to use a Qualified Domestic Relations Order.
A QDRO is a court order that splits certain retirement plan funds in a divorce. The court issues a QDRO in conjunction with a final judgment or marital settlement agreement. This order contains specific guidance for how the plan administrator is to divide the funds between the two parties. According to the Internal Revenue Service, a QDRO may order retirement funds to pay for marital property rights, alimony or child support to a spouse, ex-spouse or child.
Do I need a QDRO for all forms of retirement plans?
No, a QDRO is not necessary for the division of individual retirement accounts, government retirement plans (such as military pensions) or deferred annuities. But a QDRO is necessary for the distribution of certain plans, including but not limited to the ones below:
- Employee stock ownership
- Corporate/business pensions or defined benefits
- Tax-sheltered annuities
- Profit-sharing plans
- Money purchase plans
Federal laws restrict certain plans from paying anyone other than the original owner unless a court orders it via a QDRO. Additionally, QDROs help prevent early withdrawal penalties and tax consequences.
How are payments made?
Some plans allow lump-sum distributions and rollovers. Others only permit monthly installments. When there are multiple options available, it is often up to the recipient (alternate payee) on how to receive payments.