Divorce is tricky, especially when it comes to finances. Depending on your jurisdiction, as well as other circumstances, typically your marital assets will be divided. But if one or both of you have retirement savings, judges will often split that up as well.

Retirement plans have strict rules in place. Those rules keep you from withdrawing money without meeting a certain set of requirements. But if you’re going through a divorce, that money needs to be split as part of the proceedings, not years down the road when the spouse retires.

A qualified domestic relations order, or QDRO form, will direct your retirement plan administrator to make a payout to your soon-to-be ex. You may have heard your attorney or a friend refer to it by a nickname like “quadro” and wondered, “what is a quadro?”

Your attorney and the courts will handle the QDRO. All you’ll need to do is disclose your retirement savings as part of your marital assets. There are a few things to know if divorce is approaching and you have a retirement plan in place.

About QDROs

During your divorce, when you step up in front of the judge, you’ll present all assets that are considered marital property. Your attorney will present these to the judge, who will review them and make a decision on how to divide everything. If a domestic relations order becomes necessary, the judge will review the retirement accounts and issue a QDRO.

When a QDRO divorce takes place, the form goes to your retirement plan administrator. It’s important to turn the form in as soon as possible, then let your attorney know once the QDRO has been accepted. Once accepted, the plan administrator will take it from there.

When you’ll need a QDRO

Now that you’ve figured out what is a qualified domestic relations order, you’re ready to know if one is necessary in your situation. A QDRO comes into play when dividing assets in a divorce if one or both spouses have a retirement plan covered under the Employee Retirement Income Security Act of 1974 (ERISA). Those types of plans include:

• 401(k)s
• Simplified Employee Pension Plans (SEPs)
• Profit-sharing or stock bonus plans

IRAs are not covered under ERISA, which primarily applies to employer-sponsored plans. You won’t need a QDRO to divide up your IRA.

How plan assets are divided

As part of the QDRO, you may wonder how assets will be divided in a divorce. As with all your other assets, the judge will look at everything and make a decision based on the law in your state. If you both have a retirement plan, and the value is equal, the judge may rule that it’s best to keep the plans alone. Otherwise, judges typically will look at the money accrued during the course of the marriage and divide that portion, disregarding everything you earned and contributed before you said, “I do.”

QDRO Benefits

A QDRO divorce ruling may be required to split up your plan, but it also keeps you from having to pay penalties for early withdrawal. Your spouse will have to pay taxes on distributions, but you’ll just submit the information to the IRS and the withdrawals will be logged as falling under a QDRO.

QDRO form: required information

Although the details of the QDRO process will be handled by your attorney, you will have a responsibility for handing over the information. You’ll need to provide contact information for both you and your spouse, as well as details on your plan.

Submitting a QDRO form

It's prudent to have your attorney handle putting together a QDRO on your behalf to best protect your interests. If you opt not to use an attorney, you can find a QDRO express template online, similar to this one for the State of California. These are just templates and it’s best to have a legal professional review the form to make sure your interests are covered before presenting it to the judge.

Bottom Line

If you have a retirement savings account, a QDRO may be a necessary part of your divorce. Your legal representative should be able to manage the process for you. However, after a divorce, we recommend sitting down with a Certified Financial Planner® who can look at your finances and offer advice on the best way to save for your future.