A QDRO Can Help You Prevent Financial Loss

A QDRO Can Help You Prevent Financial Loss

For divorcing husbands and wives in Texas, concerns about the financial losses they may face when ending a marriage can be real. From splitting assets to readjusting to the fact that living alone costs more than living with someone else, the financial stings may be felt in many ways.

When it comes to 401K accounts, nobody finds it easy to see large sums of their hard-earned retirement savings disappear. While it may not be possible for a party to retain all of their 401K account after a divorce, there is a way that people can attempt to minimize loss when dividing 401K accounts. This can be done by using a qualified domestic relations order (“QDRO”).

What does a qualified domestic relations order do?

The United States Department of Labor explains that a QDRO allows an additional person to be named as an alternate payee on a spouse’s 401K account. This alternate payee may be the account owner’s spouse or former spouse.

Why do I need a QDRO?

People who split 401K accounts as part of their property division settlement should consider using a QDRO. When dealing with a QDRO, it is important to remember that each one is plan specific. In other words, a person contemplating the use of a QDRO when dividing a 401K account should consult the plan administrator to gather information prior to making a decision. Why? The plan administrator exercises final approval of the QDRO once it is entered with the court. Consulting the plan administrator ahead of time helps to ensure that a QDRO is a viable option and, if so, contains the language necessary to be approved by the plan administrator.

Absent a QDRO, the account owner may be forced to take a distribution and then pay the other spouse. If the account owner is not of retirement age, the distribution may be subject to early withdrawal fees and other penalties, reducing the net proceeds from the distribution

On top of any penalties, the account owner will likely be hit with income tax on the distributed money. MarketWatch adds that depending upon the person’s situation, this additional income may even catapult them into a higher tax bracket overall further increasing the negative tax implications.

With a QDRO securely in place, money is paid to the other spouse. This helps to ensure that the account owner has no tax or penalty problems going forward as a result of dividing their 401K.

A QDRO can help you prevent financial loss

For divorcing husbands and wives in Texas, concerns about the financial losses they may face when ending a marriage can be real. From splitting assets to readjusting to the fact that living alone costs more than living with someone else, the financial stings may be felt in many ways.

How can I make sure my QDRO is valid?

When in need of a QDRO, Texas spouses should always consult an attorney. Working with a professional is the best way to make sure these legal documents are properly prepared.