When a divorce threatens to take away everything, many people in California look for any way possible to retain what is rightfully theirs. Keeping as much of their retirement as possible is a top priority for many people.
Because retirement plans are strongly affected by divorce, people would benefit from knowing their options for preserving their savings. A qualified domestic relations order or QDRO is one of the resources they may consider.
Understanding a QDRO
A QDRO addresses only the aspects of retirement initially covered in a person’s retirement plan. According to the Internal Revenue Service, a QDRO is a formal settlement that addresses the distribution of a retirement plan’s earnings. Often, a controlled and specific method of distribution will see that retirement funds are effectively used to pay alimony or child support to a former spouse.
If a person chooses to roll their portion of a QDRO settlement over into a new retirement account, their process should follow the required guidelines. People who carelessly move money from one account to another may experience costly penalties from the early or unauthorized withdrawal of the funds.
Benefits of a QDRO
Having a QDRO may provide clarification and reassurance that both parties will receive a fair settlement of shared retirement benefits. U.S. News suggests that a QDRO can also reduce the risks of tax problems related to their retirement benefits. A well-written QDRO can preserve the integrity of a couple’s retirement plan and aid in their effort to maintain an amicable relationship. This is especially helpful for couples who share custody of their children.