How Is a QDRO Used in a Texas Divorce Settlement?

 Posted on January 31, 2022 in Divorce

During the divorce process, a couple will need to divide multiple different types of marital property. In addition to physical property, spouses will also need to address ownership of financial accounts and other complex assets, including retirement accounts or pensions. When dividing retirement assets, spouses should use a qualified domestic relations order, or QDRO. Understanding the purpose of these types of orders and the benefits they provide will ensure that spouses can protect their financial interests during the divorce process and in the years to come.

Dividing Funds in Retirement Accounts

For employer-sponsored retirement accounts such as 401Ks, a person will have a certain amount deducted from their income before paying taxes. The money saved, which will grow through investments made by the plan holder, will usually remain in an account until a person reaches retirement age, and they will pay taxes when the funds are withdrawn. 

During their divorce, a couple may agree that some of the funds in a retirement account in one spouse’s name will be withdrawn and transferred to the other spouse. However, simply withdrawing the amount will result in penalties if the account holder has not yet reached retirement age, and taxes will apply to the withdrawal. To avoid this, the court may issue a QDRO that will specify the amount that should be withdrawn and transferred to the other spouse. When a QDRO is provided to the plan holder, penalties and taxes will not apply to withdrawals, and the other spouse can roll the funds over to their own account.

Dividing Pension Benefits

If a spouse worked in a job where they earned pension benefits while a couple was married, the other spouse will be entitled to receive a percentage of these benefits. Spouses may agree on an appropriate percentage in their divorce settlement. Typically, this percentage will be calculated based on how long the couple was married and the total number of years that a spouse worked in their pension-eligible position before retiring.

A QDRO should be used to allocate these benefits between the spouses. In fact, for pension benefits earned through the Employees Retirement System of Texas (ERS) or the Teacher Retirement System of Texas (TRS), a QDRO is required before a pension plan administrator can make payments to an alternate payee. The QDRO will specify the percentage of retirement benefits that an employee’s ex-spouse will receive, and it may also state that the ex-spouse will receive a percentage of any death benefits paid after the employee passes away.

Contact Our Frisco Retirement Asset Division Lawyers

To ensure that you and your spouse will be able to divide retirement accounts or pension benefits properly, The Law Office of Linda Risinger can work with you to negotiate a property settlement, and we can help you create any QDROs that are necessary. To arrange a complimentary consultation and get legal help with legal and financial matters during your divorce, contact our Collin County property division attorneys at 972-294-6533.

Sources:

https://www.ers.texas.gov/Contact-ERS/Additional-Resources/FAQs/Qualified-Domestic-Relations-Order-(QDRO)

https://www.trs.texas.gov/Pages/QDRO-divorce-domestic-relations-order.aspx

https://www.investopedia.com/terms/q/qdro.asp