Divorce is the legal process that separates one married life into two separate lives. Part of that process involves the division of marital assets and debts, including retirement accounts in many cases. If a retirement account is part of your divorce, you might need a Qualified Domestic Relations Order (QDRO). A Murfreesboro divorce attorney at Bennett, Michael & Hornsby explains what a Qualified Domestic Relations Order is and why you might need one in your divorce.
What Is a QDRO?
A QDRO is a court order granting one spouse a right to a portion of the retirement benefits of the other spouse that were earned through an employee retirement plan. To add an alternate payee to a qualifying retirement account, meaning an account that is subject to the Employee Retirement Income Security Act (ERISA), federal law requires a QDRO to be in place. Although there are always exceptions, most private sector pension and retirement plans are subject to ERISA. As such, you should operate on the assumption that a QDRO is necessary unless your divorce attorney tells you otherwise. The purpose of a QDRO is to provide a pension/retirement plan administrator with a signed order explaining how the plan benefits are to be distributed. A QDRO is a legal document that sets forth the accounts to be divided and describes the manner of division and the name of the alternate or additional payee.
Am I Entitled to a Portion of My Spouse’s Retirement/Pension Plan?
When it comes to the division of assets in a divorce, Tennessee is an “equitable distribution” state. That means that if a judge is forced to divide assets, the goal is to create a “fair” division, not necessarily an equal division. All assets accrued during the course of the marriage, without regard to which party earned them, are subject to division in a Tennessee divorce, including retirement and pension plan assets. Conversely, if you owned a retirement/pension plan for many years prior to the marriage, the portion of assets earned prior to the marriage would not be subject to division in the divorce. As you may well imagine, deciding which portion of a retirement/pension account must be divided in a divorce can be a complex and contentious process in and of itself. Once you have decided which assets are part of the divorce and reached an agreement regarding how they are to be divided, the terms of that agreement are incorporated into a QDRO and submitted to the court for the judge’s approval. Ultimately, the QDRO will be given to the pension/retirement plan administrator to ensure that the assets held in the plan are distributed according to the agreement of the parties or as directed by the court.
Who Pays Taxes on Assets Subject to a QDRO?
According to the Internal Revenue Service, a spouse or former spouse who receives QDRO benefits from a retirement plan reports the payments received as if he or she were a plan participant. A QDRO distribution that is paid to a child or other dependent is taxed to the plan participant. You may be able to roll over tax-free all or part of a distribution from a qualified retirement plan received under a QDRO if you are either the employee’s spouse or former spouse. In that case, you can roll it over just as if you were the original account owner. Just as you should consult with an experienced attorney regarding the need for a QDRO, always consult with a tax professional about how your QDRO benefits will be taxed.
Contact a Murfreesboro Divorce Attorney
If you are contemplating a divorce and you believe that a retirement/pension plan will be part of the divorce, it is in your best interest to consult with an experienced Murfreesboro divorce attorney to ensure that your rights are protected throughout the process. Contact the team at Bennett, Michael & Hornsby as soon as possible by calling 615-898-1560 to schedule your free appointment.