QDROs, 401ks, and Dividing Retirement Accounts in Divorce: How to Avoid the Pitfalls

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Dividing retirement accounts in divorce can be both complicated and complex. If you screw it up, you can create a huge tax liability for yourself. You can also end up cheating yourself out of thousands (or hundreds of thousands) of dollars that you should have received in your divorce. That’s why understanding the basics of how retirement accounts are divided in divorce (including the use of QDROs when appropriate) is so critical.

Retirement Accounts in Divorce 

Retirement accounts are often one of the two biggest assets a divorcing couple owns. (The other is their home.)

According to U.S. Census data, over 40% of American households own IRAs. Plus, about one third of all Americans participate in employer-sponsored retirement plans such as 401(k)s, 403(b)s etc. It’s no surprise then that dividing these retirement accounts in divorce is such a big deal.

A LOT of money can be at stake!

Yet many divorcing spouses believe (at least at first!) that they’re not entitled to a portion of their spouse’s retirement assets simply because those assets are in their spouse’s sole name.

Nothing could be further from the truth!

Unless you have a prenuptial agreement that says otherwise, any money you or your spouse contributed to your retirement accounts during your marriage will generally be considered to be marital property. (If you live in a community property state, it’s deemed to be “community property.”)

That means that those contributions can all get divided in your divorce.

That’s true even if your spouse had his/her retirement account BEFORE you were married. (Although, in that case, the money that was in the account before marriage will probably be deemed your spouse’s non-marital or separate property. You’re only entitled to get a piece of the marital portion of your spouse’s retirement account.)

That having been said, though, what you can get – and when you can get it – depends on the type of retirement plan your spouse has.

Eggs with words "Social Security," "IRA," and "401k" in a nest.

Types of Retirement Plans

These days, there are a myriad of different types of retirement plans, including IRAs, Roth IRAs, 401(k)s, 403(b)s, profit sharing plans, FERS’, TSPs, ESOPs, teachers’ pensions, government pensions, military pensions, and other types of pensions.

Identifying and understanding the type of retirement account you and/or your spouse has is step number one in getting those assets divided properly in your divorce.

Defined Benefit Plans

A “defined benefit” plan is a retirement plan that guarantees that an employee will receive a certain amount of money per month/year when s/he retires. The amount of money that the employee receives is based upon a formula that takes into account factors like the employee’s salary, number of years of service, age at retirement, etc.

Pension plans are defined benefit plans.

Unlike a defined contribution plan, a defined benefit/pension plan has no set value for a particular employee. Plan participants don’t get quarterly statements that say, “Your plan balance is $________.”

Instead, plan participants get a statement that says, “When you retire, you’ll get $________ per month.”

Because of this, it’s often difficult to determine what your spouse’s pension is actually worth. Many times, you need to hire an actuary in order to get an accurate idea of the value of your spouse’s pension.

For better or worse, though, true pension plans have become increasingly rare.  Only large corporations or the government typically offer these kinds of plans today.

Defined Contribution Plans

A “defined contribution” plan is a retirement plan in which an employee contributes a fixed percentage of his/her paycheck over time. The employee’s employer generally matches the employee’s contribution up to a certain dollar amount.

401(k)s and 403(b)s are two of the most common types of defined contribution plans.

Unlike pension plans, an employee who participates in a defined contribution plan knows the exact dollar value that s/he has invested in the plan at any given time. The value is definite.

Also, unlike in a pension plan, an employee in a defined contribution plan is not guaranteed to receive any certain dollar amount when s/he retires.

Instead, s/he owns an account with a certain amount of retirement money in it. The value of that account rises or falls with the market, depending upon how the money is invested. Thus, in a defined contribution plan, unlike in a defined benefit plan, the employee will benefit if the market does well. The employee also bears the risk of loss if the market tanks.

Road sign in city stating, "Retirement Dr."

What Makes Retirement Accounts Different from Other Assets?

Two things separate retirement accounts from the other kinds of assets you and your spouse may own when you divorce.

  • Retirement accounts generally consist of pre-tax assets (except for a Roth IRA). Most other assets (like real estate, money in the bank, investment accounts etc.) are post-tax assets.
  • The federal government gives most retirement accounts special status. They’re protected from creditors’ claims. They can only be paid to the person who owns them, or to that person’s spouse or beneficiaries when s/he dies. Since 1984, the money in a retirement account can also be paid to a divorcing spouse or dependent via a Qualified Domestic Relations Order (QDRO).

What is a QDRO?

A QDRO is a special type of court order that is used for dividing retirement assets in divorce. It assigns a particular portion of a person’s retirement account to his/her former spouse or dependent.

When a retirement account is divided by using a QDRO, the transfer of funds doesn’t automatically create a taxable event. If the party receiving the funds has them transferred to his/her own IRA, s/he won’t pay tax on the money until s/he withdraws the money from his/her IRA at some point in the future.

A QDRO can be entered before, during, or after a divorce judgment. It is a completely separate court order and is NOT part of the divorce judgment.

A divorce judgment alone is not enough to effectuate a transfer to or from a retirement account.

QDROs are extremely complex court documents. Each QDRO must be specially drafted so that it complies with the exact terms of the retirement plan that it involves. Because every retirement plan is different, the terms of these orders must often be specifically tailored to the plan they involve.

Who files the QDRO in a divorce?

Like everything else in a divorce, deciding who files a QDRO in divorce is negotiable.

It’s also extremely important.


Simply put, timing matters.

If one attorney is extremely busy and delays drafting the QDRO, and the spouse whose retirement account was supposed to be divided dies, the surviving spouse will be left with a legal mess!

S/he may have to start a probate case in order to enforce his/her rights to get a portion of the dead spouse’s retirement account. And if the account that was to be divided was a pension, s/he may totally lose out on the amount s/he was supposed to have received.

When drafting QDROs, accuracy matters too.

QDROs are extremely technical documents. The exact wording of a QDRO can make a big difference in the amount of money one spouse does or doesn’t get. Because of that, many people prefer to have a special QDRO attorney, or a QDRO expert, (NOT their divorce attorney!) draft these orders.

Yellow Retirement U-Turn Sign

How does a QDRO work in a divorce?

Transferring money via a QDRO takes time … sometimes a LONG time!

There are also certain specific steps that must be followed – in order! – before one spouse actually receives the money s/he is supposed to get from the other spouse’s retirement account.

First, someone (preferably a QDRO Attorney) has to draft the QDRO. Then someone has to submit it to the Plan Administrator BEFORE it’s entered in court. Otherwise, the spouse who enters the QDRO in court risks having the Plan Administrator disapprove the QDRO after the fact.

That causes more delays and increased expense.

If the Plan Administrator has rejected a QDRO, someone has to re-draft the QDRO to correct whatever was wrong the first time. Then someone has to submit the revised version to the Plan Administrator again.

After that, everyone has to wait for the Plan Administrator to approve the revised QDRO.

Once the Plan Administrator has approved of the QDRO, then one of the lawyers has to go to court and ask the judge to enter it as a court order. (Or, if the judge already entered a QDRO that the Plan Administrator later rejected, then the attorney has to go back to court AGAIN and get the revised QDRO entered in court.)

After all that has been done, someone needs to send a certified copy of the QDRO that was entered in court to the Plan Administrator and wait for him/her to divide the retirement plan accordingly.

Who pays the taxes on a QDRO distribution?

If a QDRO is done properly, no one pays taxes on the transfer of funds from one spouse to the other. That’s a big part of the reason why divorcing couples use QDROs to begin with.

If QDROs are done properly, money moves from one spouse’s retirement account to the other spouse’s retirement account with no taxable event happening.

Ultimately, of course, someone will have to pay income taxes on that money when they take it out of the retirement account. The spouse who takes that distribution will have to pay income taxes on the money s/he cashes out or his/her retirement account.

How is a QDRO paid out?

The Retirement Plan Administrator can pay one spouse the retirement benefits s/he is supposed to receive in any way that the plan allows.

That usually means that the person receiving the money can roll it over directly into his/her own IRA. Or, that person may be able to take all or some portion of the money in cash. If s/he does that, s/he will have to pay income taxes on whatever money s/he received as income.


There is no “one size fits all” QDRO form. Each and every QDRO must be specifically drafted so that it complies with the terms of the retirement plan it is dividing.

Using a “cookie cutter” QDRO can end up costing you money in ways you can’t even imagine.

For example, if a QDRO is not written properly, loans, pre-divorce withdrawals, and survivor benefits could all be jeopardized or lost.

What’s more, QDROs are not neutral documents. They can be written in a way that favors one spouse over the other, even when everything is supposed to be “divided 50/50.” That’s why taking care to get your QDRO drafted properly is so important.

All that having been said, there are several ways to get a QDRO drafted.

Some large companies (like Fidelity) have QDRO forms available for their employees to use to divide their retirement accounts. Using these forms can be simple and easy. But know that you use those forms at your own risk!

If you use these forms and prepare your QDRO yourself, and something gets messed up, that’s on you. (… including the tax bill that can go with it!)

Also, every retirement plan is different. So, you can only use the QDRO forms that a company provides for THAT company’s retirement accounts! Using it for any other kind of retirement account may or may not work.

(That’s also why using any kind of online document production service to prepare a QDRO for you is of questionable value.)

Drafting a QDRO can be extremely complicated. Given the fact that retirement accounts vary so much, and that the rules about how to divide retirement accounts in a divorce are so technical, even divorce lawyers often hire specialists to draft these QDROs!

Word cloud of retirement account words that a divorce financial planner can help you evaluate.

5 Tips for Dividing Retirement Accounts in Divorce

  • Ask your attorney whether they recommend a QDRO specialist who can draft your QDRO for you. Specialists often charge a flat fee for this work, while attorneys charge by the hour. Hiring a specialist to draft your QDRO almost always saves you money.
  • Make sure you pay your attorney to review the QDRO that the specialist prepares. If there is a mistake in wording, or the amount to be transferred is wrong, it will cost you way more to correct that mistake later than it will to catch it now. (And some mistakes can’t be fixed!)
  • The law that regulates QDROs and retirement plans is federal. Because of that, it generally doesn’t matter what state your QDRO specialist is in. (But ask your lawyer just to be sure!)
  • Remember that EVERY retirement account you divide in your divorce requires it’s own QDRO! Every QDRO takes time and costs money. Because of that, when you’re negotiating a settlement in your divorce, it’s often much smarter and more economical for you and your spouse to keep as many of your retirement accounts intact as possible. If you have to divide retirement accounts in your divorce, try to limit the number of accounts you divide.
  • Get your QDRO prepared as early as possible! Getting QDROs drafted and reviewed and accepted by the Plan Administrator takes time. Waiting until after your divorce is final to get your QDRO done tempts fate. If something happens to you or your ex before the QDRO is entered, you’ll be in a world of legal hurt.

The Bottom Line

Dividing retirement accounts in divorce seems simple. But it can be extremely complex.

At the same time, knowing something about how to divide pensions, IRAs, 401(k)s and other retirement accounts in divorce – hopefully BEFORE you make a settlement agreement – is extremely important!

It can make the difference between getting the settlement you thought you agreed on, and getting something that is much less than you ever dreamed.

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Karen Covy

Karen Covy is a Divorce Coach, Lawyer, Mediator, Author, and Speaker. She coaches people to make hard decisions with confidence, and navigate divorce with dignity.  She speaks and writes about the art and science of making difficult decisions in emotionally-charged circumstances. To connect with Karen and discover how she can help you, CLICK HERE.


divorce blog, divorce financial planning, divorce tips, retirement accounts in divorce

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