Property division is a major part of the divorce process and can also be one of its most complicated aspects, particularly when issues are in dispute. But property division can also be highly complex even when spouses take the relatively easy, simple and more cost-effective route of working together to divide assets and debts instead of disputing those issues in court.
The reason for this is the need for qualified domestic relations orders -- or as more commonly referred to by lawyers, QDROs. What is a QDRO and why might you need one?
To start with, a QDRO is essentially a court-issued judgment, decree or order. In divorce cases, its specific function is to allow assets from a retirement account, a pension and an employee benefits plan governed by the Employee Retirement Income Security Act to be paid to someone (called an "alternate payee") other than the plan participant, without incurring an early withdrawal penalty.
This is often necessary because with most homeowners having little or no equity (at best) in today's market, retirement holdings are often the largest assets families have to divide. Money transferred or paid out from retirement accounts and benefit plans governed by ERISA can be used to accomplish the goal of equitable property division or even cover child or spousal support obligations.
Lastly, because there are numerous property division considerations, legal requirements and other issues associated with QDROs, it is best not to obtain one using one of the standard QDRO forms many plan administrators provide. Instead, speak with an attorney to learn more about this important property division tool and make certain that any QDRO issued in connection with your divorce is actually going to meet your specific needs.
Source: Reuters, "What Is a QDRO? How Divorce Affects Retirement," Andrew Chow, April 19, 2012