QDRO details make a difference

The type of debts and amount of income a consumer has can have a big impact on which type of bankruptcy plan should be used.

When getting divorced in Idaho, the financial details that arise can be very complex as well as emotionally difficult to deal with. During a property division settlement, spouses often have to part with significant amounts of financial assets depending upon their situations. Retirement accounts are frequently one type of asset that people must share with a spouse even after a divorce.

When splitting plans qualified under the Employee Retirement Income Security Act of 1974, Fox Business explains that a qualified domestic relations order should always be used.

What is a qualified domestic relations order?

According to the Internal Revenue Service, a QDRO is a legal order that establishes someone other than the retirement account owner to receive money from the account. This may be allowed for specific types of domestic situations such as a divorce property division agreement.

What other benefits are there to a QDRO?

The U. S. Department of Labor notes that a QDRO can help people to avoid paying taxes or penalties on distributions taken pursuant to the order. Typically when a person receives money from a 401K for any purpose other than retirement, early withdrawal penalties may be assessed. Income taxes may also be due.

The qualified domestic relations order may help this to be avoided. First, when a QDRO is used, the person who owns the plan no longer holds responsibility for taxes on distributions to the alternate payee. If the alternate payee has money directed to another approved type of retirement fund, they may also be able to avoid paying taxes on the amount received.

Are there other things that a QDRO should include?

A qualified domestic relations order should always provide provisions for what would happen to funds in a 401K if either the plan owner or the alternate payee were to die prior to an approved and plan distribution being completed.

If the plan owner were to die, the QDRO might specify that the alternate payee should be considered the surviving spouse for benefits purposes. If the alternate payee were to die, the QDRO might indicate that planned distributions should become part of their estate so that any estate plan that person has in place would then include those assets.

How can I get a QDRO?

The best thing for a divorcing Idaho resident to do when seeking a qualified domestic relations order is to talk to an attorney. This will give people the opportunity to get all of the facts about QDROs and allow them to know their orders are properly created.