What Can a QDRO Do for You?

If you are getting divorced in Georgia, learn when a Qualified Domestic Relations Order may be needed to protect your assets.

Among the many issues facing divorcing spouses in Gainesville, Georgia, is that regarding the loss of precious assets. These losses can come in the form of items that have predominately sentimental value such as family heirlooms or momentos like photographs and vacation souvenirs.

Other losses can come in the form of money. Child support or alimony payments, for example, can cost a paying spouse a lot of money over the course of multiple years. Splitting the value of bank accounts and retirement accounts is another way that spouses can lose significant assets. Some of these losses are unavoidable. However, others associated with these can be avoided.

When a 401(k) account must be split, the use of a Qualified Domestic Relations Order can prevent the assessment of taxes and penalties, thereby salvaging valuable assets for one or both partners.

What taxes might be incurred?

Perhaps the best way to understand this is to look at a real-life situation. Forbes explains that after withdrawing nearly $50,000 from his 401(k) account to give to his wife, a man then had to pay 10 percent of that in taxes. This occurred even though he acted at the direction of a family court judge. These taxes were legitimately due because the transaction was viewed as an early withdrawal of retirement money.

How does a QDRO help?

A judge's direction to withdraw money from a retirement fund to pay a former spouse is not sufficient to avoid penalties. The filing of a Qualified Domestic Relations Order is the way to do this. According to the U.S. Department of Labor, a QDRO can be used to outline stipulations for using 401(k) funds to pay alimony, child support or property division settlement amounts.

With a QDRO, the receiving spouse is set up as an additional payee for the account. It then directs how much money can be paid to that individual and may even stipulate payment dates and frequencies, if for recurring purposes like child support. If used for child support or spousal support, no tax will be assessed at all. The Internal Revenue Service explains that taxes may be assessed if funds are paid out for property division agreements unless the spouse who receives the money reinvests it in another qualifying account.

Saving future assets

Retirement accounts are essential elements in planning for the future for many Georgia residents. Ensuring that as much money as possible is kept for this purpose is therefore important. When getting divorced, working with an experienced attorney is the recommended way to preserve assets.