Why do some couples need a QDRO during their divorce?

On Behalf of | Mar 11, 2022 | Divorce

Every divorce is unique. People have different needs. A couple with young children may need to litigate custody matters, while an older couple facing retirement may have completely different challenges.

Some couples dividing retirement savings or pensions will need to file a Qualified Domestic Relations Order after their divorce. Others will not need to file this special document. When will a couple need a QDRO to finish dividing their property?

When they divide a specific retirement account

Under Virginia property division rules, both spouses often have an interest in the retirement account. Even if it is only in one spouse’s name or if there were contributions made prior to the marriage, at least a portion of the account balance will likely be marital property. Virginia’s equitable distribution rules mean that the spouses will need to divide the account or at least consider the portion that is marital property when dividing other assets.

In situations where one spouse keeps the account and the other receives different marital property to compensate them for their theoretical share of the account, a QDRO may not be necessary. However, when couples need to actually split the account itself, then they need a QDRO. One lawyer will need to draft it in accordance with the property division order. The courts will also need to approve it before the divorcing couple can use it to split the account.

Why is a QDRO so important?

When you have a 401(k) or similar retirement account that you fund, you cannot touch the money that you put in the account until you reach retirement age. Early withdrawals from the account will trigger taxes and possibly penalties.

Divorce is one of the only scenarios where you can take money from a retirement account without paying penalties to access your own savings. When the courts approve a QDRO and the spouses file it with the individual or business managing their retirement savings account, they can split an account without incurring a penalty.

Although you will have to share some of the funds with your spouse, you won’t lose your savings to taxes so long as the amount that you split goes into a newly-established separate account. Learning about QDROs can help you push for a fair division of your property in an upcoming divorce.