A QDRO is a qualified domestic relations order. It’s a court order used to help divide financial accounts.
Generally, it works by officially recognizing someone other than the account holder as an alternate payee. This means they have a legal right to a portion of the funds in that account. Why might you need to use a QDRO if you are going through a divorce?
Dividing retirement benefits
The main reason to use a QDRO is to split up retirement benefits, such as a pension plan or an employer-sponsored retirement plan. For example, perhaps your spouse has been earning a pension that will pay them $5,000 per month after they retire. You had planned to use this money for retirement as well. But now, your spouse has filed for divorce.
The court will consider several factors, generally starting with the length of your marriage. The goal is to determine what percentage of the pension was earned during the marriage.
For instance, if your spouse earned 100% of their pension while you were married, then they may have to divide the entire pension with you. A QDRO could allocate $2,500 per month to each individual. However, if your spouse earned part of the pension before or after the marriage, then you may be entitled to a smaller monthly payment.
Many people overlook this important order and assume they cannot access their ex’s retirement benefits after divorce. This is not always the case, which is why it is so important to understand how QDROs work and when it is necessary to get one in divorce.