A Qualified Domestic Relations Order (QDRO) is one of the many documents that you can use during a divorce to better safeguard your interests. It specifically helps couples with the division of certain assets. It can be used to set up a system to distribute future assets, like an employer-sponsored retirement plan or a pension plan.
Such plans are often classified (at least, in part) as marital assets. A pension or retirement plan is a direct benefit that is being earned during the marriage, through the course of employment. That value isn’t paid out the same way that earnings, bonuses or commissions are, of course, but it is still being earned in the same way. Therefore, both spouses may have a claim to it.
How can you effectively divide the value of a plan? A couple getting divorced may not have even retired yet, so they’re not getting monthly pension payments or anything of that nature. There are no related financial assets to divide at that very moment, as a result. That’s where a QDRO comes into the picture.
Establishing a future percentage
A QDRO will be used to officially designate the other spouse as an alternative payee for the pension or retirement plan. It will also specify the percentage of the payment that should be sent to that person. For example, maybe the person who earned the pension had to work for the company for 40 years before they had fully earned it. But they were only married for half of that time, or 20 years. Their ex would have a right to half of the value that was created during the marriage, or 25% of the total pension.
In the future, when the employee retires from their job and begins to receive their pension, the 25% earned during the marriage will be sent to their ex as the alternate payee. The QDRO ensures that this will happen, and so it is a tactic that people use to protect their retirement options. Many married couples plan on using the same retirement benefits, but a divorce can change that financial equation. A QDRO helps to keep those retirement plans in place for both parties.
Considering your options
If you are getting divorced, you can see why it’s so important to think about all of your legal options and the various assets that you own. Be sure you know what steps you can take to obtain the assets you deserve.