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Protect your share of retirement assets with a QDRO

During the course of your marriage, you and your husband worked very hard to build a solid financial foundation. But, now that you are considering divorce, you will have to split the assets you have spent years accumulating and growing. For instance, you have to decide how to handle your Honolulu home. You can keep the house, take a fair amount of assets in exchange for letting your soon-to-be ex keep it or sell it and split the proceeds.

Another high-value asset you must divide are your respective retirement accounts. If the two of you accrued your retirement savings during the years you were married, you each might have a legal right to a portion of the other's 401(k) or pension plan. But if your spouse was the main breadwinner, you may be wondering how to protect your share of the money. This is where a Qualified Domestic Relations Order (QRDO) comes in.

QDRO

A QDRO can protect your rights to your spouse's retirement accounts. This document is generally a court order that provides very specific instructions to the financial institution or organization that manages the pension plan for your spouse's employer.

The administrator of the plan will not disperse funds without a QDRO signed by the court. It must contain instructions on how to allocate your share of the benefits and at what frequency. While your divorce settlement may state the percentage of your spouse's retirement accounts to which you are entitled, it does not qualify as a QDRO.

The QDRO is a court order that must contain specific information for the plan administrator to separate the funds for deposit into your account. Beware of any potential early withdrawal penalties and keep in mind that the QDRO only applies to tax-qualified plans like 401(k)s. You will not need one in order to divide an IRA or SEP account.

The payout

When and how you receive your payout may depend on the type of plan your spouse has. For instance, some plans allow immediate lump-sum payouts. Other plans might permit lump sum payments at some future date, or you may have to accept disbursements made at specific intervals.

If you are planning to divorce and you and your spouse have retirement accounts, it is important to know if you need to take any additional steps to protect your share of the funds. Depending on the kind of retirement accounts your fspouse has, you might need a QDRO from the court to protect your interests.

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