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What is a QDRO and do I need one in my divorce?

Being a part of a successful business in California is a point of pride for many business owners and business professionals who may find themselves working long hours and putting in a lot of hard work in order to see the fruits of their labor. In the end, business owners and professionals can look forward to considerable income in addition to the possibility of a generous 401k when they retire.

What can be considered a happy ending for some may not be the same for divorcing business owners and professionals who may ultimately see their retirement plan as a problem later on, especially if their spouse did not work during the course of their marriage. In fact, in such a scenario, a retirement account like a 401k could become a source of contention if it's not dealt with appropriately.

A look at Qualified Domestic Relations Orders

When it comes to property division, just about any asset acquired during the course of marriage is considered community property and is divided equally during divorce proceedings. This includes retirement accounts like a 401k.

But in cases where one spouse contributed to the account while the other spouse did not because they were not working, it's not difficult to imagine that the working spouse may have a problem with sharing their hard-earned money. This is where a qualified domestic relations order, or QDRO, comes into play.

A QDRO is an order issued by the court that establishes an alternate payee as the recipient of some of the funds from a private retirement account.

Although the QDRO stipulates what portion of the retirement account will go to each spouse, it does not become effective until it is served on the retirement account, explains the California Judicial Branch. Until it's served, the contributing spouse can choose to take some or all funds out of the retirement account in order to protect their financial assets without violating the QDRO.

QDROs should be drafted by a professional

Because QDROs must include specific language, it's important to talk to an attorney before signing or agreeing to the terms of a QDRO. Unless you have a complete understanding of California's complex family laws, then a lawyer is the best way to make sure your financial best interests are protected.

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