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When is a QDRO needed in a California divorce?

Before that question can be answered, it might be helpful to have a basic understanding of what a QDRO is. Most California residents already know that employee retirement plans accumulate funds tax-free until they are withdrawn at the appropriate age. An early withdrawal of funds creates significant tax consequences. When a spouse is awarded funds from the retirement plan of the other spouse in a divorce, a qualified domestic relations order (QDRO) might be needed in order to allow for the tax-free distribution of those funds in accordance with a property settlement agreement.

Most retirement plans that are offered by private employers require a QDRO. This includes 403(b)s, 401(k)s and pensions. Government employees' retirement plans are subject to different rules when they are to be divided. Individual retirement plans (IRAs) do not generally require a QDRO, along with a company retirement plan that was rolled over into an IRA when an employee leaves the company.

It is inadvisable to draft a QDRO without assistance. They can be complex and often need to be reviewed by the company to ensure that it complies with its rules. If it is not correctly drafted and executed, the company, the court and/or taxing authorities might not accept it.

Therefore, it is a good idea to involve California counsel who routinely drafts these orders and understands when they are needed. Like many other issues that arise during a divorce, the division of retirement accounts is not always as simple as agreeing on a number. There are ordinarily additional steps that must be taken in order to effectuate the transfer.

Source: wcpo.com, "How retirement plans get divided in a divorce", Jan. 20, 2016

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