A qualified domestic relations order (QRDO) is the method through which a retirement plan is divided in the event of a divorce. It provides the terms in which a retirement plan administrator should divide and pay plan proceeds. It is a separate order from the divorce agreement itself.
The purpose of a QRDO is to provide protection of the funds by not allowing a non-employee spouse to withdraw and deposit them elsewhere, at least beyond what he or she has the right to own per the divorce. In other words, a QDRO lets the plan administrator know a divorce has taken place and a court had ordered specific payout of funds. When a QRDO has been issued, the non-employee spouse can withdraw any awarded funds without penalty from the retirement account and move them to an account of his or her choosing.
A QRDO only applies to plans that are IRS tax qualified and covered by the Employee Retirement Security Act. They do not apply to an IRA or SEP. In addition to approval of a court, the order must also be approved by the qualified retirement plan administrator.
A qualified domestic relations order is an important document that can have many tax implications and future financial repercussions. An experienced divorce attorney should be able to interpret all of the provisions of your retirement plan summary and incorporate them adequately into a divorce agreement. He or she can be a vital asset to making sure all of your rights are protected and that you do not walk away with less than what you are legally entitled to.