Divorce proceedings typically require a number of different types of documents. Spouses have to file petitions with the court to initiate the divorce process. They may have to submit documents disclosing their resources and debts. They may even need to work with a lawyer to draft special paperwork after a judge finalizes the divorce.
Divorce doesn’t fully end with the final decree from the courts. Spouses have to follow the court order and divide their property. Couples with complex marital estates sometimes need qualified domestic relations orders (QDROs) to divide their property. A lawyer drafts the QDRO after the courts finalize the property division settlement for the spouses. The courts and both spouses have to review and approve the QDRO. A QDRO can be one of the most important documents for those handling challenging financial issues in a divorce.
What is the purpose of a QDRO?
Property division proceedings may require that spouses use certain resources to offset the value of other assets or responsibility for marital debts. Other times, they may directly divide certain assets. The division of certain resources may require careful planning. A QDRO is necessary in scenarios where spouses need to split a retirement savings account. With a QDRO, spouses can split a tax-deferred retirement savings account or a pension without financial consequences.
Typically, making an early withdrawal from a retirement account could trigger a 10% penalty. There are also income tax considerations. People have to claim the amount of the withdrawal as income, which can significantly increase their tax obligations for the year.
With a QDRO, it is possible to directly divide retirement savings without penalties or tax consequences. The professional managing the account transfers a specific percentage of the available balance into a new account created in the name of the other spouse. The proper creation and implementation of a QDRO is therefore critical for a fair asset division outcome.
Learning more about the different tools that can help people in high-asset divorce scenarios can make it easier to negotiate or set goals for the divorce process. Couples with more complex resources often have a more challenging asset distribution process and may require special documentation to minimize their losses.
