When couples have a joint investment in a retirement plan, such as a 401(k) or IRA, and later decide to divorce, they can initiate what is known as a Qualified Domestic Relations Order (QDRO). This will allow property to be divided and alimony payments to be made, essentially serving as a legal order that divides ownership of a retirement plan to give each spouse a share of the assets.
A QDRO will not work for everyone or all circumstances. Upon bringing your QDRO proposal to court, the administrator of your plan will ensure that it complies with the Employee Retirement Income Security Act (ERISA). Typically, the person who is the alternate payee, whether the ex-spouse or another individual who is not the primary holder, is taxed when the funds are withdrawn from the account, though the 10% early distribution penalty will not apply in such cases. However, if the ex-spouse who is receiving part of the plan completes an IRA rollover within a 60-day timeframe, tax on it may be deferred.
This rollover only applies to the ex-spouse and does not include any other alternate payee. Additionally, the rollover must happen within 60 days of receiving funds from the QDRO and, to avoid a 20% federal income tax withholding, the funds must also be transferred directly from the qualified plan to the IRA of the ex-spouse.
At Coulter Lambson, our team of St. Louis County divorce attorneys can provide you with personalized legal solutions that suit your best interests and needs. We have numerous years of experience in assisting couples secure their future, regardless of the circumstances and we can do the same for you.Call us today to schedule a free initial consultation at (314) 309-2377