In Minnesota divorce proceedings, the term “QDRO” is short for “Qualified Domestic Relations Order.” A Qualified Domestic Relations Order is a court order that divides qualified retirement assets between spouses, as part of the divorce process. Usually, a QDRO is entered as a separate order, after the divorce has been finalized by entry of the divorce Judgment and Decree. However, QDRO language can be included as part of the divorce Judgment and Decree, though in Minnesota divorce practice this is rarely done.
Qualified retirement assets include 401(k) plans, 403(b) plans, and pensions. These retirement assets can be divided as part of the property division. No income taxes or penalties are paid because the division occurs in connection with a divorce. Property transfers between spouses that occur as part of a divorce proceeding are non-taxable. However, valuing and dividing retirement assets can be complex, and it is important that the QDRO be prepared by a competent, experienced attorney.
In essence, a QDRO is a court order that instructs the plan administrator to divide a retirement asset between former spouses in a particular way. In the case of a 401(k) plan or a 403(b) plan, the division takes place promptly after the receipt of the QDRO. In the case of a pension, the monthly payment that commences upon retirement is divided between spouses according to a formula. The formula factors the number of years of the marriage together with the total number of years of employment. That way, the non-participating spouse receives only a portion of the marital component of the pension.
Not to get overly technical, but a “qualified” retirement asset is, by definition, one that is described in Section 401(a) of the Internal Revenue Code. It is a company retirement plan that is established for the benefit of company employees, and typically the employer makes a contribution to the plan. IRAs and Roth IRAs are individual retirement accounts, not qualified retirement assets, and they are not divided with a QDRO.
If you have any questions about QDROs, you should feel free to call attorney Daniel Fiskum at Minnetonka Family Law, P.A. The telephone number is (952) 270-7700. Minnetonka Family Law is conveniently located in the Carlson Towers, located at the intersection of Highway 494 and Highway 394 in Minnetonka, Minnesota. Call now to schedule a meeting for a free divorce case analysis.
