A QDRO Agreement: What It Is and Why You Need One
If you`re going through a divorce, you`re probably familiar with the term “QDRO.” But what exactly is a QDRO agreement, and why do you need one?
“QDRO” stands for “Qualified Domestic Relations Order,” and it`s a legal document that allows a divorced spouse to receive a portion of their ex-spouse`s retirement benefits. Without a QDRO, your ex-spouse`s retirement benefits are off-limits to you, even if you were married to them for many years.
Here`s how it works: when an employee participates in a retirement plan, such as a 401(k) or a pension plan, the plan is governed by federal law. Under these laws, a spouse is entitled to a portion of their ex-spouse`s retirement benefits if they were married for at least ten years during the employee`s participation in the plan.
However, simply being entitled to a portion of the benefits isn`t enough. You need a QDRO agreement to actually receive those benefits. A QDRO is a legal document that instructs the retirement plan administrator to pay a portion of the benefits to the non-employee spouse.
A QDRO agreement is important for a few reasons. First, it ensures that you receive the portion of the retirement benefits to which you`re entitled. Without a QDRO, your ex-spouse could simply refuse to pay you, or the plan administrator could refuse to release the funds. A QDRO eliminates these potential roadblocks.
Second, a QDRO allows you to roll over your portion of the benefits into your own retirement account. This is important because it allows you to continue to grow your retirement savings, rather than simply receiving a lump-sum payment.
So, if you`re getting divorced and your ex-spouse has a retirement plan, make sure you get a QDRO agreement. It will ensure that you receive the portion of the retirement benefits to which you`re entitled and give you the ability to continue to grow your retirement savings.