As with most property in an Arizona divorce, pensions and retirement accounts are often considered part of the marital estate and are divided according to Arizona’s community property rules. This often means that part of one spouse’s pension or retirement account needs to be distributed to the other spouse.
But wait; when you take money out of a 401(k) or a similar plan before age 59-1/2, you could face tax consequence and even penalties. You can’t just withdraw the money and give it to your divorcing spouse without paying the piper.
That’s where a qualified domestic relations order, or QDRO, comes in. A QDRO (pronounced QUAD-row) is a court order that gives the retirement plan administrator the authority to divide the plan without incurring penalties and taxes.
With an appropriately drafted QDRO, the 401(k) or 403(b) plan administrator can transfer the specified assets to another type of retirement account. This is how you prevent the penalties and taxes from coming due. A QDRO can also award survivor’s benefits should a plan participant die.
What a QDRO must include
At the minimum, a QDRO needs to contain the name and contact information of the plan participant and the alternate payee (their divorcing spouse), along with a dollar amount or percentage of the account that is to be transferred to the alternate payee.
Unfortunately, each retirement plan can have its own rules about what needs to be included in a QDRO. That means there is no one-size-fits-all QDRO form that you can feel confident about. Your divorce attorney will determine what is required in your specific QDRO according to the plan’s rules and Arizona law. The court will generally use the QDRO that your attorney drafts, unless there is a legitimate objection from your ex’s attorney.
In some cases, you must submit a certified copy of your divorce decree with the QDRO.
Once the QDRO has been submitted to the retirement plan, the plan should let you know if it was accepted or not. If it was not, the plan is required to provide an explanation as to why not, along with what action steps are needed to get it approved.
At that point, your divorce attorney will help you obtain a new QDRO for submission to the plan.
Whether you are negotiating a divorce settlement or going to trial, you will need a properly drafted QDRO to divide most types of pensions and retirement accounts. Work with an attorney who is familiar with local retirement plans and their QDRO requirements.