The reason you need a QDRO to split your retirement account

Equitable distribution in a divorce helps protect everyone. Since the goal is fairness, spouses have an opportunity to ask for consideration based on issues ranging from health concerns to the career sacrifices they made to be a stay-at-home parent.

Often, one of the most important assets you will split with your spouse is your retirement account or savings. The equitable distribution rules for divorce generally mean you will have to share at least the savings from during your marriage with your spouse.

If you draft a Qualified Domestic Relations Order (QDRO), you can substantially limit how much of those funds you allocate in the divorce.

What is a QDRO?

A QDRO is a special document todivide retirement accountsand pensions. One of the attorneys representing one of the spouses will put together the QDRO based on the property division order created by the judge or negotiated by the spouses. The judge overseeing the filing will then have to approve the QDRO.

One of the spouses then needs to submit it to the plan administrator overseeing their retirement account. The financial professional will then split a specific portion of the account into a newly created, separate account in the name of the recipient.

When done appropriately, splitting a retirement account with QDRO will eliminate the penalties and taxes that usually come from early withdrawals. In other words, you and your spouse will be able to keep as much of the account as possible even though you have to divide it before you reach retirement age.

Learning about the different tools forproperty divisioncan help you reduce the financial impact of your divorce on your retirement.