In a divorce, a spouse may be entitled to a percentage of the other party’s retirement account (401k, IRA, etc.) or pension. If either spouse were to withdraw money from the retirement account without redepositing it into another retirement account, there are tax implications and sometimes penalties. In situations with a pension, they are not paid out until retirement.

Fortunately, there is a mechanism for the divorcing spouse to receive their economic interest in the other spouse’s retirement account without either party suffering a penalty. The mechanism is called a Qualified Domestic Relations Order, or “QDRO” for short. The QDRO is an order detailing the alternate payee’s right to receive part or all of plan participant’s benefits under the plan. For example, a QDRO could state that the Husband is entitled to $50,000 of his Wife’s 401k. After the QDRO is filed with the plan administrator, the $50,000 could be sent to the Husband’s pre-set up retirement account. The QDRO could also state that the Wife is to receive approximately thirty percent of the Husband’s pension when it is pay status. Therefore, once the Husband retires and the pension pays out, the Wife would receive her thirty percent directly and the Husband would receive his seventy percent directly, making things much easier on both parties.