What is a QDRO?
A Qualified Domestic Relations order (QDRO, sometimes pronounced “qua-dro” for short) is an order in a divorce case that tells a plan administrator how to allocate all or a portion of a person’s retirement benefits to the other party. It’s basically a way to split up a pension or retirement plan by recognizing that both parties in a divorce have a marital interest in the plan, regardless of which party actually contributed the funds. In short, it’s a way to give each spouse a fair share of the funds.
When everything is done appropriately, a distribution of proceeds from the retirement or pension plan from one spouse to the other has no immediate tax consequences for either party. Without a QDRO, there could be a significant penalty for early withdrawal of funds from the retirement plan.
QDRO orders must be written precisely and approved by the plan administrator and the family law court. When drafting a QDRO, the best advice is to seek professional help from a lawyer.