QDRO vs. Divorce Decree

Hello, my name is Scott Johnson.

In this episode of the Financial Success Academy on divorce, I'll discuss the difference between a divorce decree and a qualified domestic relations order or "quadro" (QDRO). As you and your spouse work towards a final draft of a divorce decree, the language regarding the division of all retirement assets needs to be very specific in the decree in order to avoid confusion, potential economic loss by either party, and further litigation.

Make sure you discuss the following three items with your attorney or mediator prior to drafting and signing the final divorce decree.

First, you need to know and understand that the time between the date of separation, the execution of your divorce decree, and the ultimate division of a retirement account can be many months long.

Retirement account balances are subject to market fluctuations that can be extreme in the short term. Make sure that the language in your decree takes market fluctuation into account so that neither party is economically penalized if the balances of your retirement accounts drop in value between the date of separation and the date on which the accounts are divided. Just as both parties should share in the gains of balances after the date of separation, so should both parties participate in market losses.

Second, there are costs associated with dividing retirement accounts. Make sure that your divorce decree states that both parties will share in those costs equally.

Third, once you have a divorce decree, you'll need a qualified domestic relations order or QDRO signed by the court in order to divide any retirement account.

A QDRO is a legal document, often drafted by an attorney, which reflects the language of your divorce decree specific to the division of Retirement Accounts, including your 457(b), a 401(a), a 401(k), 403(b), IRA, and your LEOFF pension.

A retirement plan provider cannot use a divorce decree to divide a retirement account. They will only accept a QDRO. Additionally, most retirement plan providers require specific language in the QDRO, so check with each retirement plan provider before drafting the QDRO. Most retirement plan providers also charge a fee to process a QDRO, which is why your divorce decree and your QDRO should specifically state that those fees should be split equally by both spouses.

I hope you found this video helpful. Again, if you have any specific questions about any of this information, please call our office, and we'll be happy to talk about your specific situation. Thanks and stay safe.