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What a QDRO means for your retirement plan

Divorce sets even the best-laid plans asunder. Your retirement plan is no exception. When separating and continuing through to divorce, your plans for the future may seem up in the air. What will happen to the money you saved in your 401(k) and beyond?

When dividing assets during a divorce, your retirement money is part of the pot. In North Carolina, a spouse may receive a proportionate share of 401(k) accounts and other money that is set aside for retirement. The use of a QDRO form will accomplish the division.

The basics

Unless your divorce happens close to or at retirement, you cannot withdraw the money from a retirement account without tax implications and penalties. Therefore, the division waits until the account holder reaches retirement age. In order to accomplish this, a judge typically utilizes and incorporates a QDRO form into the final divorce decree.

The QDRO sets forth the division of retirement accounts. It tells the bank or investment company who gets what part of it. It is a legally binding document, and banks and businesses adhere to its direction. The IRS also receives a copy of the QDRO when the assets get divided.

The process

As a former spouse, you may not want to wait until the time of retirement to get your share. In this instance, a QDRO may result in the immediate rollover of your share of the money into another account. Setting up the rollover, new account and implementing it all takes time and money.

Some spouses prefer to negotiate a cash buyout or settlement in lieu of preparing a QDRO. In some ways, this saves money and time and allows the spouse holding the account to remain in charge of his or her retirement money. Note that the former spouse’s proportionate share will not grow like the accountholder’s share. It will remain at the amount set during the divorce proceedings.

Splitting money during divorce may seem impossible, and it is usually stressful. Dividing up retirement account money is one asset to consider splitting during the proceedings.