The Weekly Scenario: Dividing Pursuant To A QDRO – IRA Vs. Employer-Sponsored Retirement Plan
Question: Is there a difference in the way an IRA and an employer-sponsored retirement plan is divided pursuant to a QDRO?
Answer: A qualified domestic relations order or QDRO is necessary to transfer employer plan assets due to divorce, but not necessary to divide an IRA.
The way to divide an IRA in fulfillment of a divorce decree is through a trustee to trustee transfer between spouse’s IRAs. It is incumbent upon the IRA owner to act in compliance with a specific divorce decree, not the IRA custodian. This means the divorce decree must be specific about the assets that are to be divided (including who is responsible for the fees, if any, and how they are to be paid).
In contrast, for an employer plan, a QDRO is required and should state the percentage or particular dollar amount that will be split. The plan assets will not be able to be split without the domestic relations order. However, the QDRO cannot force the plan to make any distribution that is not permitted by the plan administrator.
Comment: The employer plan may have a form QDRO available which could reduce the time needed for the company to approve it. Once approved, the (ex) spouse will then have control over his/her share of the plan assets and can withdraw the funds from the plan.
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