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What do you need to divide a qualified retirement plan?

On Behalf of | Dec 21, 2021 | Divorce

If you’re getting divorced in California, you’ll need to be aware that some assets are easier to split than others. What are counted as marital assets and what are not will complicate matters. In addition, how your assets are classified will determine what documentation and procedures you must go through. Typically, retirement accounts are counted as marital assets that require specific documents to divide.

How to split a qualified retirement plan

You’ll need to get a qualified domestic relations order, or QDRO, to divide retirement assets. A QDRO establishes that one spouse has a claim to a portion of the other spouse’s qualified retirement plan in their divorce proceedings. It applies to any retirement or pension account covered by the Employee Retirement Income Security Act. In other words, if you have a financial account created by your employer, it will most likely fall under the terms of the QDRO. IRAs that you or your spouse may have set up on your own are considered marital property and can be divided during divorce negotiations.

A QDRO gives divorcing couples a distinct advantage as it allows for early withdrawals without incurring the 10% IRS penalty. You’ll be able to receive a lump sum or specified payments before age 59.5.

How to get a QDRO

Getting a QDRO involves several steps in order to divide marital property. You’ll need to create the papers for the order and have a judge sign off on it to allow the retirement plan administrator to receive the QDRO.

You’ll want to establish the QDRO as early in the divorce process as possible because the retirement plan administrator can take up to 18 months to respond to the document. Ideally, the QDRO should be in place before your final divorce decree to avoid any complications and so that you can receive your payments without renegotiation.