How does a QDRO work?

On behalf of Stange Law Firm, PC posted in High Net Worth Divorce on Saturday, January 6, 2018.

If you are one of the many people in Missouri eyeing a divorce this year, you will want to start learning how you may protect your assets. Certainly you know that splitting some assets with your current spouse is likely to be part of your ultimate divorce settlement. However, it is reasonable for you to seek ways to minimize some of your losses. If you expect that you may need to split a 401K or other employer-sponsored retirement account, you will want to know about the qualified domestic relations order.

As explained by the United States Department of Labor, a QDRO may provide you with important protections when splitting a retirement fund as part of your property division settlement. Without a QDRO, you may need to withdraw money from your account and then give it to your spouse. If you do this, you may end up paying early withdrawal fees as the distribution would not meet retirement criteria. These fees may be quite high and eat up a large portion of what assets remain in your account. On top of the penalties, you may owe income tax on the amount you withdraw.

A QDRO allows money to be paid directly to your spouse. This bypassing of you eliminates any assessment of penalties and taxes on you. If your spouse reinvests the money, they may also be able to avoid tax assessment.

This information is not intended to provide legal advice but is instead meant to give divorcing Missouri residents an idea of how they may be able to protect some of their hard-earned retirement savings when ending a marriage.

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