Divorce settlements often include the division of retirement assets, such as 401(k)s and pensions. If a court has awarded you a portion of your ex-spouse’s employer-sponsored retirement plan, you may be wondering: How do you actually receive your share? At Ellsworth Law Firm, we guide clients through the process to ensure they secure what they are entitled to.
Step 1: Obtain a Qualified Domestic Relations Order (QDRO)
A divorce decree alone does not automatically transfer retirement funds. Most employer-sponsored retirement plans require a Qualified Domestic Relations Order (“QDRO”) to facilitate the division. A QDRO is a court order that instructs the plan administrator to distribute funds to the alternate payee (the spouse receiving a share of the account).
What Does a QDRO Do?
- Specifies the percentage or dollar amount awarded to you.
- Identifies whether the funds will be paid as a lump sum or rolled into another retirement account.
- Ensures compliance with federal laws governing retirement plans.
- Prevents early withdrawal penalties if funds are properly transferred.
Step 2: Draft and Submit the QDRO
Your attorney should draft the QDRO in accordance with both the terms of the divorce decree and the specific requirements of the retirement plan.
Step 3: Receiving Your Funds
After the plan administrator approves the QDRO, you will need to decide how you want to receive the funds. Your options typically include:
- Rolling the funds into your own retirement account (IRA or 401(k)) – This avoids immediate tax consequences.
- Taking a lump sum withdrawal – Keep in mind, if you withdraw the funds instead of rolling them over, you may owe income taxes.
- Setting up scheduled distributions – Some plans allow periodic payments rather than a single distribution.
What About Taxes?
If the funds are rolled over into another qualified retirement account, no immediate taxes will be owed. However, if you take a direct distribution, the amount may be subject to income tax, and if you are under age 59½, an additional 10% early withdrawal penalty could apply (except for certain exceptions when using a QDRO).
Step 4: Confirm Your Payment and Monitor the Process
Even after the QDRO is processed, it’s important to follow up with the plan administrator to ensure payments are made correctly. If there are delays, your attorney can assist in resolving any issues.
Need Help with Your QDRO?
Navigating the QDRO process can be complex, and errors may delay or jeopardize your share of the retirement funds. At Ellsworth Law Firm, we have extensive experience helping clients in Lehi, Utah, secure their rightful portion of employer-sponsored retirement benefits after divorce.
If you need assistance drafting or enforcing a QDRO, contact us today for a consultation!
