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QDROs, divorce and you: How to split retirement assets wisely

Those going through a divorce generally have two main concerns. First, if children are present, parents may be concerned about child custody and child support issues as well as how the process will impact their emotional development.

The next concern likely centers around how assets will be split. This is decided during the property division determination portion of the divorce proceeding.

A number of complex areas are taken into consideration during this determination. Arguably, one of the more difficult assets to divide during this portion of the divorce is retirement accounts.

Why is it important to take care with retirement accounts?

Determining how much of each account each spouse receives is tricky. The determination may require financial specialists, complex equations and educated guesses on retirement ages, financial needs and potential health concerns.

It is important to take the time to split these assets wisely. Deposits made in the early years accumulate and are difficult to replace later in life. Finalizing the divorce with a mix of assets, including retirement assets, is generally best for future financial security.

Although the actual division is tough, it is not the end. If not done correctly, the agreed upon split may be for naught.

In many cases, a qualified domestic relations order is required to ensure that you receive distributions from these accounts. Without this document, the administrator of the retirement account may not be required to pay out benefits to an ex-spouse.

What is a qualified domestic relations order?

A qualified domestic relations order, or QDRO, is a court order that is often required for an ex-spouse to receive benefits from a retirement account.

How can I make sure I receive the agreed upon benefits?

QDROs are generally approved by the plan administrator. In many cases, it is wise to take this step before signing any final divorce settlement documents. It is also important, and often required, to file the QDRO with the plan administrator before benefits are paid out.