Retirement Account Division in Divorce Requires Special Steps

One of the assets that you have to divide during the property division process of a divorce is the retirement accounts you and your ex have. If you have to move any of these around, you'll need to have a qualified domestic relations order, or QDRO. This is a court-issued document that provides instructions to the plan administrator so you aren't left having to pay penalties when you move them around.

The QDRO covers 401(k) accounts and other qualified plans. IRAs are handled using the transfer incident to divorce process. When the court issues a QDRO, it sets the terms for the retirement plan to issue a payment to an alternate payee.

There is specific information that must be included in the QDRO in order for it to be valid. The name and mailing address of both the alternate payee and the participant must be included. The method of division and any other division information must also be included.

Once it is issued, the document is reviewed by the plan administrator. If everything is set, the terms are executed according to the order. It's possible that there might be an issue with the order. In this case, the administrator returns it to the court for correction and will execute the order when the correct one is received.

Improperly handled QDROs can be costly, so you must be sure that you're taking steps to protect your interests. Remember, there are other components of the property division aspect of the divorce that you also need to think about so you can make the financial decisions that are in your best interests.

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