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What role does a QDRO serve in a Kentucky divorce?

On Behalf of | Sep 7, 2023 | Divorce Financial Planning |

The family law system utilizes many unique words and phrases that people will need to learn about as they prepare for divorce, as people generally need to understand the rules that govern issues like property division and shared parental responsibilities so that they can more effectively negotiate with their spouse or set reasonable goals for a litigated divorce process.

There are also numerous unique tools that can help families achieve specific goals during Kentucky divorces, including specialized paperwork used during property division matters. For example, a qualified domestic relations order (QDRO) could be one of the most important documents when it comes to property division.

What does a QDRO actually do?

Couples can use QDROs to divide retirement savings

People usually make regular contributions to retirement savings accounts for decades before they qualify to withdraw funds from those accounts. There are taxes and penalties assessed when someone makes a withdrawal from a retirement account before they reach retirement age. Those financial penalties serve as a deterrent to prevent people from undermining their own financial stability in their golden years to achieve short-term financial goals earlier in life. Of course, there are scenarios in which someone may have to divide retirement savings through no fault of their own, including divorce.

The contributions made to a retirement savings account during the marriage will usually be part of the marital estate, which means that those deposits are subject to division. A QDRO allows divorcing spouses with retirement savings to split the account by moving a specific percentage into a new account created for the other spouse without triggering any taxes or penalties. Provided that people follow the steps appropriately, they won’t have to worry about taxes and penalties eating into their retirement savings.

Dividing accounts isn’t always necessary

Drafting and filing a QDRO can take weeks in some cases, and people often feel very anxious about diminishing their retirement holdings. It is possible for those who reach an amicable resolution to property division disputes to agree to terms that factor in the accounts balance without directly dividing it. Someone’s share of home equity or their ownership interest in a small business could balance out their share of the retirement accounts. So long as spouses reach an agreement that they both believe is fair, they can move forward with uncontested divorce proceedings where they have total control over the division of their assets.

Ultimately, learning about QDROs and other property division tools may benefit those preparing for negotiations or divorce court in Kentucky. Seeking legal guidance is a good way to gain this clarity.