Understanding QDROs and the Division of High-Value Retirement Accounts

The high stakes of divorce are even higher when valuable retirement accounts are part of the marital assets to be divided. Retirement accounts are often among the most desirable of a couple’s marital assets, thanks to their tax benefits, capacity for growth, and ability to provide for an individual in their golden years. One tool available to divorcing couples is a Qualified Domestic Relations Order, which assists with the distribution of retirement accounts in a divorce.

Learn more about QDROs and the role they may play in your divorce. As you get ready to navigate this challenging time, make sure you have an experienced attorney by your side. Call Kirk Drennan Law at 205-953-1424 to set up a time to talk to our team.

Valuation of Retirement Accounts

Before you get too far in your divorce planning, it’s essential to understand how retirement accounts are valued and how they may be split up. High-value accounts often include 401(k)s, pensions, and IRAs. Valuation of these assets involves determining the current value of the account or, in some cases, its future worth.

While some accounts’ value is based on their current financial worth, others are valued based on their likely future growth. Factors involved in this process include the type of account, when the account was opened, and how much was contributed during the marriage. For example, if someone has worked for a company for 15 years and got married five years into their tenure, the amount put into the account in the last 10 years would likely be considered marital property.

What QDROs Do

A Qualified Domestic Relations Order helps you avoid many of the potential consequences of splitting up a retirement account.  Taking funds out of a retirement account before you reach retirement age can come with stiff financial penalties, and a QDRO sidesteps those. The QDRO must specify how benefits are to be divided and in what way the funds will be disbursed. It must also ensure that the funds are handled in a way compliant with federal regulations. When a QDRO is drafted properly, it preserves the tax benefits of valuable retirement accounts.

Drafting QDROs for High-Value Accounts

The way in which a QDRO is drafted is essential. Any ambiguities or vague language could cause serious complications. QDROs must be painfully specific, including details on the exact percentage or dollar amount to be given to the other spouse, the timing of the distribution of the funds, and information on survivor benefits. The QDRO should also account for any relevant tax implications.

For example, it may say that the taxes will be withheld from the distribution or that they will be paid by the recipient. If the account provides survivor benefits, the QDRO must address how those will be handled should the individual pass away.

The Role of Your Legal Counsel

This is one area where having an experienced attorney can really pay off. When high-value accounts are on the line, you do not have room for mistakes or errors that can have legal consequences for either party. An attorney with experience in high-asset divorces can make the process of drafting a QDRO as smooth as possible.

Your attorney may help ensure compliance with all relevant regulations and laws. They can also put you in touch with tax and financial professionals who can help avoid costly errors that may lead to tax penalties. Of course, your attorney will also play a key role in the negotiation of your retirement accounts. These accounts are extremely valuable in most divorces, so you may be in for several rounds of negotiation. Your attorney will learn more about your priorities and preferences, and then use that information to guide negotiations. As negotiations proceed, your lawyer can help you make the best decision for your future.

Protect Your Future and Financial Investments with Kirk Drennan Law

The choices you make during your divorce can play a crucial role in your financial well-being. Get the legal representation you need to advocate for yourself. Call Kirk Drennan Law at 205-953-1424 or fill out our online contact form to discuss your next steps with our team of divorce lawyers.