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Is a QDRO needed to transfer retirement assets in divorce?

On Behalf of | Jul 21, 2020 | Divorce |

When a Maryland couple begins to sort out their assets in preparation to negotiate a property division settlement regarding divorce proceedings, financial assets can play an important role. Bank accounts and investment portfolios often take center stage in divorce negotiations; however, retirement accounts and pension plans can also account for a significant portion of the couple’s assets. In many instances, a QDRO, or qualified domestic relations order, will be required.

As a part of the divorce settlement, it may be determined that a spouse may receive assets from the other spouse’s pension plan, 401(k), 403(b), employee stock option or other qualifying retirement plan. These funds cannot simply be withdrawn and given to the spouse; they are governed by various tax laws and plan requirements. In order to gain access to these assets, the plan administrator will need to be provided with a QDRO detailing how the participants assets are to be divided between the participant and the alternate payee, the spouse receiving the assets.

One benefit of the QDRO is that is does allow the participant to transfer funds to the alternate payee without incurring an early withdrawal fee. An alternate payee is the spouse, child, or other dependent of the participant. Additionally, the participant generally will not be liable for taxes on the amount transferred. This amount is treated as income to the alternate payee.

Due to the nature of pensions and retirement accounts, the individual will want to discuss the various options with experienced legal counsel. This may seem like a simple decision; however, these types of accounts and the paperwork associated with them can become complicated. Additionally, mistakes can be costly to a Maryland resident. If necessary, a QDRO will need to be prepared, signed by the judge and presented to the qualified retirement plan’s administrator.

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