What is a QDRO (pronounced “kwadro”) and why is it important to understand during a divorce?  A QDRO is a Qualified Domestic Relations Order that creates the alternate spouse’s right to receive all or a portion of the benefits due under a retirement or pension plan.

Part of any divorce involves dividing marital property.  Marital property is comprised of Assets and Liabilities.  Assets may include the following:  Cash, Investment and Retirement Accounts; Life Insurance, Notes Receivable, Business Interests, Real Estate, Vehicles and Other Assets.  Liabilities may include Credit Card debt and debt on any assets owned including mortgages and vehicle loans.

Some Marital Property can be very easy to divide while other property may be more complex.  One of the more complex assets to divide is a retirement account or pension plan which can become even more complicated when a portion of the retirement or pension was accumulated prior to the marriage (non-marital).   Every state has different rules and statutes to consider when splitting assets.  It is helpful to hire a forensic accountant, familiar with the laws in your state, to help determine what is the marital portion versus the non-marital portion.

When splitting a traditional retirement account such as a 401K, IRA or Roth IRA; a QDRO needs to be prepared to detail how the retirement account or pension should be split.  If a QDRO is not prepared correctly, there can be significant tax consequences.  For example, if a spouse attempts to distribute funds from a Qualified retirement plan without using a QDRO, it is possible that the IRS will treat the distribution as a taxable event.  It is possible that a 10% early withdrawal penalty will be applied.

The IRS website provides this helpful information:

Retirement Topics – QDRO – Qualified Domestic Relations Order

A QDRO is a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant. The QDRO must contain certain specific information, such as:

  • the participant and each alternate payee’s name and last known mailing address, and
  • the amount or percentage of the participant’s benefits to be paid to each alternate payee.

A QDRO may not award an amount or form of benefit that is not available under the plan.

A spouse or former spouse who receives QDRO benefits from a retirement plan reports the payments received as if he or she were a plan participant. The spouse or former spouse is allocated a share of the participant’s cost (investment in the contract) equal to the cost times a fraction. The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. The denominator is the present value of all benefits payable to the participant.

A QDRO distribution that is paid to a child or other dependent is taxed to the plan participant.

An individual may be able to roll over tax-free all or part of a distribution from a qualified retirement plan that he or she received under a QDRO. If a person receiving QDRO payments is either the employee’s spouse or former spouse (not as a nonspousal beneficiary), then he or she can roll it over, just as if he or she were the employee receiving a plan distribution and choosing to roll it over.

 Additional Resources:

Publication 504, Divorced or Separated Individuals
Publication 575, Pension and Annuity Income

See www.irs.gov for more information.


With all the complexities in splitting assets in a divorce, and specifically retirement accounts or pensions, you should consult with an attorney or other expert that prepares QDRO’s regularly.  A simple internet search can result in a list of professionals qualified to help.  You can also ask your divorce attorney or forensic accountant for recommendations.

The cost of having a QDRO prepared varies depends on the complexities of the plan being divided.  It might be helpful to seek multiple quotes.  Again, your divorce attorney or forensic accountant may be able to refer you to someone that charges a reasonable fee for the service.  While this range of fees may seem high if you’ve never paid to have a QDRO prepared previously, it can be well worth it to avoid negative treatment by the IRS if a retirement account or pension plan isn’t handled correctly, which ultimately could cost you much more.