The QDRO Timeline: When, Why, and How Fast You Should Act After a Divorce
When you divide your assets during a divorce, don’t be surprised if your retirement accounts are among the most in-demand assets you have to discuss. Retirement accounts are typically very safe assets that gain value steadily year after year. They largely determine how you spend your golden years, often making the difference between struggling through each month and thriving. However, to divide certain types of retirement accounts, you need a QDRO. Learn more about how the QDRO attorneys at Entz Burton & Associates can help you with these and other legal requirements.
At Entz Burton & Associates, we know how hard our clients work to build their wealth. Our goal is to preserve it and allow it to grow. For decades, attorney J. Michael Entz and our other QDRO lawyers have helped clients avoid unintentional tax consequences that come with dividing assets during divorce. Discuss your options with our team now by calling us at 405-773-9800.
Understanding QDROs
QDRO is short for Qualified Domestic Relations Order. This is a legal tool commonly used in divorce to split up certain types of retirement funds. It’s not uncommon for divorcing couples to either agree to a split of retirement funds or for the court to order that retirement accounts be split. This is often the case when only one party has funds saved for retirement or when there’s a significant disparity between the spouses’ retirement savings. If individuals want to split funds outside of divorce, they typically have to withdraw the funds and transfer them directly. This often incurs financial penalties that a QDRO may allow you to avoid.
How Fast Do You Have to Act? When to Begin the QDRO Process
Your QDRO law firm will likely start the process of drafting a QDRO as soon as you’ve agreed upon a fair split of your retirement assets. The actual deadline for filing a QDRO and dividing assets depends largely on the retirement plan itself, but in general, getting it squared away as soon as possible is in everyone’s best interests. Until the QDRO is finalized and the assets are divided, it’s largely a loose end that you have to keep in the back of your mind—and no one wants to do that.
When everything has officially been signed off on and assets have switched hands, that’s one less issue tying you to your ex-spouse. Additionally, prompt filing of the QDRO ensures that other issues do not complicate your retirement funds—for example, the employee cashing out before the assets can be split, the employee rolling the funds over and away from their ex-spouse, or either party passing away.
Why a QDRO is Necessary
QDRO attorneys handle many of these important legal documents every single year because they are such a necessary part of most divorce proceedings. QDROs ensure that the new rightful owner of retirement funds can gain them without either party suffering unnecessary taxes and penalties. Retirement accounts often come with substantial tax benefits, but to take advantage of those benefits, you cannot access the funds until a specific retirement age. If you get divorced before that age, simply withdrawing the funds and giving them to your ex-spouse doesn’t look like a division of assets—it looks like the employee tapping into their retirement benefits early, which often means a penalty of 10% or more and full taxes coming out of the withdrawn amount. When a transfer is part of a divorce or other domestic order, it isn’t a regular withdrawal—it is protected from unnecessary taxation and penalties.
Common Mistakes to Avoid
As you navigate this stage of your divorce, work with a QDRO lawyer to ensure you don’t stumble over any of these common errors:
- Not knowing the terms of your retirement plan: Every plan has its own rules you have to follow, and failing to adhere to them can cause issues when you attempt to split up your funds.
- Trying to handle the division of retirement funds on your own: This isn’t something you want to tackle on your own—doing so may result in delays, penalties, and hefty taxes.
- Failing to communicate with the retirement plan administrator: You’ll likely need to communicate with your plan administrator until the transfer of funds is complete. Keep them in the loop throughout the process.
Reach Out to Entz Burton & Associates to Explore Your Options
It’s time to discuss your plan division with our QDRO law firm. Call us at 405-773-9800 or reach out online to schedule a confidential consultation right away.
Attorney J. Michael Entz at Entz Burton & Associates is an experience lawyer in estate planning law, business formation and asset protection serving the families in Oklahoma City and Weatherford office.
