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QDRO can be important in a high-asset divorce

| Jul 30, 2020 | Divorce |

Investment accounts, retirement accounts and pension plans often play a significant role when a Virginia couple decides to divorce. As thoughts turn to what each individual wants from the divorce, the bank account and house are generally the first items considered. However, in many high-asset divorce cases, these other accounts may hold the majority of the couple’s assets.

Accessing these other accounts, though, is not as easy as writing a check or selling the house. There are often a number of rules, requirements and tax implications involved. Additionally, depending upon the type of account, a qualified domestic relations order — known as a QDRO — may be necessary to receive funds from the account if it is held in the spouse’s name.

A QDRO is an order indicating that someone other that the individual noted on the account has a right to part or all of the account. This order is not necessary for all types of bank, investment or retirement accounts. However, it is necessary in order to receive funds from a 401(k), 403(b), pension plan, employee stock option or some other types of retirement plans owned by the spouse. Each one of these accounts has specific tax laws and tax implications associated with them. The QDRO details how these assets are to be divided.

In addition to providing specific direction regarding division of the account, the QDRO provides the participant with the ability to transfer these funds to the alternate payee, the soon-to-be ex-spouse in the case of a divorce, without incurring an early withdrawal penalty. Additionally, the alternate payee will then be the one responsible for paying taxes on this part of the funds. In a high-asset divorce, this can be a substantial tax liability or savings. Prior to negotiating the terms related to the division of these accounts, the Virginia resident will want to discuss the details with experienced legal counsel.