California is a community property state, meaning that, during your divorce, the judge will split all assets and income equally between you and your spouse, regardless of who purchased an asset or earned the income. Like personal property, real estate, income and other assets, the judge who presides over your case will split all retirement accounts fairly between you and your spouse. Splitting retirement accounts can be a complex and drawn-out process, as each different type of retirement account has unique tax requirements. A qualified domestic relations order can help simplify the process and ensure that the judge distributes the funds in yours and your spouse’s retirement accounts correctly.
According to Bankrate, a QDRO is a legal document that helps couples fairly split individual retirement accounts with a dependent, spouse or ex-spouse, and without experiencing any tax implications. If a person were to transfer money in a retirement account without the aid of a QDRO, however, the owner of the account may incur the taxes and penalties typically associated with a transfer.
QDROs typically only apply to workplace retirement plans such as 401(k)s, 403(b)s and other conventional pension plans. Though you do not need a QDRO to split your retirement assets with your spouse, it is a good idea to obtain one, as a transfer with a QDRO will not trigger costly penalties. According to the wealth planning professional whom Bankrate interviewed, you stand to lose almost half your retirement account if you are not careful about how you perform the transfer.
The information in this post is for purely educational purposes. It is not intended to serve as legal advice.