Qualified Domestic Relations Order (QDRO) - Explained
What is a Qualified Domestic Relations Order?
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Back to: INHERITANCE, ESTATES, & TRUSTS
What is a Qualified Domestic Relations Order (QDRO)?
A Qualified Domestic Relations Order is a court order directed at holder of an individuals retirement funds. In most states, spouses acquire a legal or equitable interest in all assets that come into the estate (except for assets received as a gift or inheritance) during the marriage. This includes the retirement benefits (either defined benefit or defined contribution plans) accrued by either spouse. When spouses separate, the court often distributes ownership of the total assets to each spouse (i.e., the court separates and divvies up the assets). Because the retirement assets are held by a third-party retirement fund, the court will issue a QDRO to the fund managers regarding how to distribute the assets when they are withdrawn.
How Does a Qualified Domestic Relations Trust Work?
As stated above, the QDRO is used to order a retirement fund to distribute assets from a retirement account in a specific manner. For example, the QDRO could order the fund to distribute 50% of the retirement benefits to one spouse and 50% of the assets to another. This order allows the retirement fund to legally undertake this action. Further, it allocates any tax liability for the distribution to the party receiving the distribution. Without a QDRO, a spouse may give 50% of her retirement benefits (upon receipt) to the other spouse. In this case, the retiree spouse will be taxed the full value of the benefits received. Additionally, she may be subject to gift taxes on the benefits transferred to the former spouse. A QDRO will fix this unfortunate tax consequence. There are limitations on the extent to which a state court can order a retirement fund to take action pursuant to a QDRO, including:
- The order can only control benefits included in the plan and cannot create additional benefits.
- The QDRO does not have priority over previous QDROs that allocate the retirement benefits.
- The QDRO cannot control qualified joint benefits or survivor annuities for the ex-spouse and their subsequent spouses.
In some situations, a court may issue a QDRO for the benefit of a non-spouse (such as dependent child or family member).
- Succession Planning
- Chartered Trust and Estate Planner
- Cy Pres Doctrine
- Exordium Clause
- Non-Contestability (No Contest) Clause
- Per Stirpes
- Elective Share
Qualified Domestic Relations Order (QDRO)
- Declaration of Trust
- Uniform Gifts for Minors Act
- Acceptance of Office by Trustee
- Beneficial Interest
- Asset Protection Trust
- Bare Trust
- Blind Trust
- Charitable Lead Trust
- Credit Shelter Trust
- Discretionary Trust
- Generation Skipping Trust
- Grantor Trust Rules
- Living Trust
- Inter Vivos Trust
- Qualified Domestic Trust (QDOT)
- Qualified Terminal Interest Protection Trust (QTIP)
- ABLE Account
- Accumulated Income Payments (Canada)
- Charitable Split-Dollar Insurance Plan
- Coverdell Education Savings Account