What is a QDRO and do I Need One?

If you are thinking about filing for divorce in Michigan, you probably know that part of the divorce process involves the division of marital property. Generally speaking, any retirement benefits that you earned-or that your spouse earned-during the marriage are likely to be classified as marital assets and thus will be subject to division. If you do have any kind of retirement benefits, from pension plans to individual retirement accounts (IRAs), you will need to learn more about how the funds contained in those accounts will be divided. This is where a Qualified Domestic Relations Order (QDRO) will come into play. In short, when it comes to qualified retirement benefits, a QDRO can allow for funds to be withdrawn early from retirement accounts without paying the typical penalties, and they can also outline the ways in which the non-employee spouse (the one receiving the funds out of the other employee's retirement account) will be paid.

The following will explain more about how QDROs work and why they can be important for dividing retirement benefits in a divorce.

What is a QDRO?

If dividing retirement benefits is part of your divorce settlement, a QDRO is an extremely important tool. A Qualified Domestic Relations Order (QDRO) is a court order that is a type of domestic relations order. The University of Michigan provides an FAQ sheet about QDROs, which explains that they can be used for a wide variety of domestic relations issues, including "property rights, alimony, or child support."

For many Michigan residents, QDROs are necessary when retirement accounts are being divided. For most retirement accounts, the beneficiary (along with anyone else) cannot make a withdrawal without incurring a 10% penalty until you are 59½ years old. With a QDRO, funds can be taken out of a retirement account for purposes of property division without incurring that penalty. However, taxes will still need to be paid on the amount withdrawn. The QDRO can also specify how the non-employee spouse can be listed as an alternate payee from the account, and how that alternate payee will receive payment(s).

When Both Spouses Have Nearly Equal Retirement Benefits

If both spouses have been working and earning retirement benefits throughout the course of the marriage, a QDRO might not be necessary since property can be divided in such a way that both spouses keep their own retirement benefits and do not receive funds from the other's accounts.

Likewise, even if one spouse was a stay-at-home parent during the marriage and did not earn any retirement benefits, it may be possible to reach a property settlement that keeps the employee spouse's retirement accounts intact but provides the other spouse with assets that account for his or her portion of the current benefits and the amount that they are likely to accrue in interest in the future.

Learn More From a Michigan Divorce Lawyer

If you have a question about QDROs or dividing retirement benefits in your Michigan divorce, you should reach out to a Michigan divorce lawyer as soon as possible. Contact the Law Offices of Michael A. Robbins to learn more about the services we provide.