Divorce can be challenging, and the stress of dividing assets can place both spouses in a contentious mood. Even when spouses make a mutual decision to part ways, separation can still produce conflict. Asset division may be difficult with both spouses disagreeing about who retains certain items. Few assets are as significant—and critical—as retirement accounts. 
During a divorce, one or both partners may petition the court to issue a qualified domestic relations order (QDRO). A QDRO enables a former spouse to receive a fair share of retirement assets without accruing any unnecessary tax liabilities.
QDROs and New York Divorces
A QDRO is a legal document issued and enforced by a New York family court. QDROs serve a very specific purpose: ensuring that a separating spouse, child, or other dependent retains their entitlement to a fair share of an account owner’s retirement plan assets.
The Internal Revenue Service states that, under most circumstances, a spouse or former spouse party to a QDRO must report any received QDRO-related benefits “as if he or she were a plan participant.”
By effectively categorizing QDRO recipients as plan participants, the former spouse does not need to pay taxes on the transfer of retirement plan assets. Instead, they pay taxes in accordance with the original terms of the plan.
The Necessity of a QDRO
Divorce courts do not always order the division of retirement plan assets unless the division of these assets is included in the terms of a settlement.
However, once both parties agree to divide retirement plan assets, petitioning the court to issue a QDRO is usually necessary. This is because a QDRO effectively informs the retirement plan administrator that a divorce has occurred, and assets must be divided between the former spouses.
QDROs and Other Dependents
QDROs serve purposes outside of and beyond divorce. If a dependent or former dependent is entitled to a portion of the account owner’s retirement plan assets, the court could issue a QDRO in their favor.
A QDRO Can Be Awarded to Various Parties
- A minor child
- An incapacitated or otherwise legally incompetent child
- An incapacitated or otherwise legally incompetent adult
If a QDRO is awarded to a minor or incapacitated adult, the plan administrator may be responsible for ensuring that every eligible plan participant receives benefits.
Creating a QDRO
A QDRO is only valid and legally enforceable if it has been approved by the court overseeing the divorce. However, QDROs are simply approved by the court—they are not written by a clerk of the court, nor are they always recommended by judges. Filing for a QDRO typically involves the following steps:
Drafting the QDRO
- The QDRO must include the name and last known mailing address of the plan participant and each intended payee.
- The QDRO must include the name of each plan to be included in the order.
- The QDRO must include the dollar amount, or percentage of benefits, to be awarded to the recipient.
- The QDRO must include the number of payments to be received by the recipient.
Pre-Approval by the Retirement Plan Administrator
Most courts require that a QDRO be pre-approved by the plan administrator. After pre-approval, the petitioner may approach the court to authorize the order.
Court Approval
After the plan administrator has approved the QDRO, it must be sent to the court. In New York, QDROs often sit before the bench for weeks—sometimes even months.
If the QDRO concerns a pension or other defined benefit plan, the spouse who owns the account should make out-of-pocket payments until the order is approved. If they do not make out-of-pocket payments, they may be directed to do so upon the QDRO’s execution.
Execution
Once the court has approved the QDRO and a judge has signed the order, it may be presented to the plan administrator, who must execute the order and begin dividing retirement benefits.