You and your spouse have been planning for retirement all your adult lives. Because your spouse made all those contributions to his retirement plans during your marriage, they are now marital property in your divorce. However, dividing retirement accounts can be a complex process, especially since each retirement plan may have its own rules.
The IRS explains that you do have legal recourse to ensure that you still receive the retirement benefits that belong to you as the alternate payee. In many cases, you may do this without the penalties that come with early withdrawals. This is where a QDRO comes in.
Qualified Domestic Relations Order
A QDRO is an official court judgment that orders the retirement plan administrator to give you the benefits that you are entitled to as an alternate payee of the plan. You cannot receive any benefits that the original plan does not offer. The court order cannot change the terms of the plan.
You must structure a QDRO properly or it will not be valid. It must have your spouse’s name and mailing address, as well as your own. It must also include what percentage you will receive and the method used to calculate that amount. Finally, it must state how many payments you will receive and how you will receive them.
It may be possible for you to roll your distribution of the plan into your own qualified retirement plan. This is likely to avoid any penalties and taxes, and it also ensures that you have money to retire on, which may be more important than ever now that you are single. If you do go ahead and take the disbursement as a lump sum, you will have to pay taxes on the amount, so be sure to figure that in when you are creating your post-divorce budget.