Dividing marital property in a Florida divorce often includes retirement funds. Since Florida is an equitable distribution state, property such as retirement funds must be divided fairly.
Sometimes this means each spouse keeps their own retirement funds if they are generally of equal value. But if one spouse has significantly more retirement assets than the other, splitting the retirement funds may be required.
When you divide most marital property, you typically take whatever proper steps are necessary, such as transferring funds from one bank account to another or refinancing a mortgage to remove a spouse’s name.
But when it comes to retirement accounts, a special document called a qualified domestic relations order (“QDRO”) is used to transfer funds from one account to another.
Benefits of a QDRO
A QDRO allows the spouse transferring the funds to avoid early withdrawal penalties from the IRS. The receiving spouse can avoid the same penalties but only if the funds are transferred into another retirement account. If the funds are taken as cash or put into a regular bank account, they will be taxed.
Drafting a QDRO can sometimes result in unnecessary problems or conflict due to common mistakes.
If you submit a QDRO with a mistake, no matter how minor, you might be forced to pay taxes on the transferred amount since it is viewed as a withdrawal. Or the wrong amount of retirement proceeds may get transferred to your spouse.
Once a QDRO is submitted and the transaction completed, it is difficult to undo the error. Even if it is eventually corrected, fixing the error is likely going to cost you time and money.
Thoroughly research QDRO requirements
The first step to ensuring a QDRO is properly drafted is thoroughly examining the type of retirement account involved. Every retirement account is different and has unique requirements.
Sometimes a retirement plan will provide a sample QDRO. Although it may be tempting, it is best to not use the template. It is usually meant to give you a general idea of what information a QDRO should contain but likely won’t contain all necessary information specific to your retirement plan.
It is best to have a QDRO prepared at the same time as you file your marital settlement agreement and your divorce becomes final. There is no specific time limit to file a QDRO after a divorce but doing it as soon as you can protects your interest in the retirement proceeds if you are the spouse waiting to receive them.
Who drafts the QDRO?
You and your spouse can always agree on who is responsible for drafting and filing the QDRO, but this is usually the responsibility of the spouse receiving the retirement funds.
QDRO’s are complicated documents. Once you have determined how a retirement fund will be split, start researching and analyzing the QDO requirements and consult a professional to reduce the chance of mistakes or delays.
