2 mistakes that people make when dividing savings with a QDRO

On Behalf of | May 6, 2023 | Property Division

A qualified domestic relations order (QDRO) is a very important tool for those who are not yet at the age of retirement when they divorce. A QDRO allows people to divide a retirement account that would typically be subject to taxes or early withdrawal penalties in the event of division between parties. The QDRO instructs the person managing retirement resources to split a specific percentage of the account into a new, separate account in the name of the other spouse.

When properly executed, a QDRO can preserve retirement savings and help make a divorce more equitable. Unfortunately, people sometimes make mistakes concerning QDROs that undermine their financial stability post-divorce.

They assume their spouse will put the document together

Especially if someone is the recipient receiving a portion of an account that is in the name of their spouse, they may operate under the assumption that their spouse’s attorney will be the one to draft the QDRO. That may not be what happens. Spouses may need to discuss with one another which attorney will draft the QDRO and submit it to the courts for approval. Assuming that someone else will handle the creation of the document could lead to significant delays or someone not receiving what they should in the divorce.

They wait too long to file a QDRO

Having a lawyer put together a QDRO and submitting it to the courts for approval are only the first two steps in the process. The QDRO hasn’t served its purpose until someone actually divides the retirement account. Some people forget to submit the documents or intentionally delay them by a few months.

Unfortunately, they may end up in a scenario where the account balance significantly drops due to withdrawals by the other spouse or bad investments. In most cases, the sooner that someone records a QDRO with the plan administrator after divorce, the less likely they are to fall victim to misconduct by their spouse that could diminish what they received from the account.

Seeking legal guidance to better avoid common mistakes related to QDROs and retirement accounts can benefit those who are preparing for a high-asset divorce.