Do you need a QDRO to divide your retirement assets?
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Do you need a QDRO to divide your retirement assets?

For hard-working individuals who have spent a significant number of years working and accumulating considerable retirement savings, the division of assets is a major concern in divorce proceedings. It’s natural to want to retain as much of your income and savings as possible.

Minnesota is an equitable distribution state, which means that the division of assets is not 50/50 but rather “fair and equitable.” The determination of what fair and equitable means for your divorce is calculated by factors such as financial earning capacity and length of the marriage.

As mentioned above, one asset that majorly affects every individual’s future is their retirement savings. The first thing you need to determine is whether your divorce proceedings will need to include a Qualified Domestic Relations Order (QDRO), which outlines the division of this important asset. Specific types of retirement savings plans need it, referred to here as “qualified plans,” while others do not. Failure to prepare a QDRO can lead to difficulties, including inability to collect benefits years down the road. Here are the guidelines for Minnesota residents.

“Qualified” plans that need a QDRO

Qualified plans under the Employee Retirement Income Security Act (ERISA) must use a QDRO to distribute retirement assets. The process for dividing assets for these plans is two-fold. You must include specific wording in the divorce decree that explicitly states your intentions for asset division. However, you must also prepare the QDRO, which is a separate document entirely. It must be signed by a judge and then accepted by the company who issued your plan.

Qualified plans include:

  • Profit sharing plans
  • 401(k)s
  • 403(b)s
  • Simplified employee pensions (SEP)
  • Savings incentive match plans for small business employees
  • Employee stock ownership plans
  • Some other pensions might also qualify. Look into your pension plan documents to know for sure.

What kind of plan doesn’t need a QDRO?

IRAs don’t fall under ERISA. As such, they do not require a QDRO. However, it is still vital to explicitly outline your distribution plan in your divorce decree.

It is crucial that, if a QDRO is necessary, it is filed in a timely and proper matter to avoid legal and financial repercussions. If your course of action is not immediately clear, consult with an attorney or your plan provider to verify your next move. Then you can begin to have your assets valued and considered for fair and equitable distribution.