Legal Blog
The Weekly Scenario: Qualified Domestic Relations Order
Question: My husband and I are separating with the intent to divorce. Part of the property settlement will be his IRA and his company 401(k) plan. Will I need a qualified domestic relations order (or QDRO) before these retirement plans can be divided?
Answer: There are a few essential requirements (and pitfalls to navigate) before retirement plan accounts can be moved in a divorce context.
For an individual retirement account (IRA) to be split as a result of a divorce, there must be a divorce decree issued pursuant to a state domestic relations order addressing the marital estate. There will be no authority for the IRA to be divided in a tax-free transfer without this court order.
What some advisors don’t realize is that for an IRA (SEP, SIMPLE or otherwise), no QDRO is needed to divide the account in a divorce. Note that the IRA funds to be divided in compliance with a divorce decree must be done via a trustee to trustee transfer. In fact, there was a recent Maryland case where this was not done properly and the tax court had no sympathy for the taxpayer who made the error (John R. Kirkpatrick v. Commissioner, TC Memo 2018-20, (February 22, 2018). This is a great case of what NOT to do with your IRA in a divorce.
By contrast, a QDRO is an order that is required to divide an ERISA based employer retirement plan in a divorce. QDROs require more time and expense and will require the plan administrator to determine whether the requirements to be a QDRO have been met.
Comment: A QDRO is a very specific type of order that is required to divide an ERISA based employer retirement plan in a divorce. To qualify as a QDRO, a court must include certain detailed information in an order, and under federal law, the administrator of the company plan is responsible for determining whether the requirements of the QDRO have been met.
Bottom Line: When assets are to be divided as a result of a divorce, it is particularly important that specific procedures take place in dealing with retirement plan accounts.
As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or .
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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