When a couple gets divorced, they must divide their marital property. However, their marital property can include each spouse’s retirement accounts or contributions made to those accounts during the parties’ marriage. A retirement account holder usually cannot withdraw funds from their account to give to their spouse during divorce without triggering penalties or taxes. Instead, parties and courts must use qualified domestic relations orders to “divide” retirement account assets.
What Is a QDRO in Iowa?
An Iowa court presiding over a divorce may issue a qualified domestic relations order (QDRO) to facilitate the division of one spouse’s retirement benefits in qualified retirement plans, such as 401(k)s or pensions, when those benefits constitute marital assets subject to division in divorce.
A QDRO creates a legal mechanism to transfer a portion of the funds from the owner spouse to the other without incurring early withdrawal penalties or other tax liabilities. Instead, the QDRO directs the account to pay benefits or assets to a spouse, just as it would to the account holder or plan participant. A QDRO must include the name and last known address of the plan participant and alternate payee, the name of the plan to which the order applies, the dollar amount or percentage of assets or benefits payable to the alternate payee, and the number of payments or period to which the order applies.
A QDRO identifies a spouse as an “alternate payee” who has the right to receive all or a portion of the assets in a retirement account owned by the other spouse. For a retirement account manager to recognize a QDRO, the order must qualify as a “domestic relations order.” This category includes any judgment, decree, or order made according to state domestic relations law or community property law relating to the provision of child support, alimony payments, or marital property rights for the benefit of a spouse or former spouse of a retirement plan participant. Thus, a prenuptial, postnuptial, or divorce settlement agreement cannot serve as a QDRO unless a state court adopts it as an order of the court.
A QDRO may not require a retirement plan or account manager to do certain things, such as:
- Provide an alternate payee with any benefit or option not otherwise offered by the plan
- Provide increased benefits
- Pay benefits to an alternate payee already designated for another alternate payee under a prior QDRO
- Pay qualified joint and survivor annuity benefits to an alternate payee during their life.
The QDRO Process in Iowa: Step-by-Step
The process of obtaining a QDRO in Iowa involves several steps. First, the parties or the court must draft a QDRO, which must meet specific requirements. For example, it must identify the account holder and alternate payee and describe the benefits assigned to the alternate payee. Parties must ensure that the order meets the specific requirements of the retirement plan. ERISA-governed retirement plans will have different requirements for QDROs than government-run retirement plans for public employees.
Parties can ensure the validity of a QDRO by submitting a proposed order to the retirement plan administrator for pre-approval. The administrator can review the order and confirm that it will carry out its terms. This allows the parties and the court to revise the order, if necessary, before the court finalizes it.
Suppose the parties submit a draft order for pre-approval and receive confirmation that the administrator will implement the order. In that case, the parties can then submit the draft to the court for execution. The alternate payee named in the QDRO should also obtain a certified copy of the order from the court.
After the court issues the QDRO and the plan matures, the alternate payee can receive payments from the retirement plan directly rather than from their former spouse.
How Does a QDRO Affect Your Divorce?
A QDRO can affect your divorce by allowing you and your spouse to divide assets in retirement accounts that you either created or funded during your marriage without needing to withdraw funds before retirement age, which can trigger significant penalties or tax liabilities for many times of retirement or pension accounts.
How Can an Attorney Help You with the QDRO Process in Family Court?
A knowledgeable divorce lawyer can help you obtain a qualified domestic relations order in Iowa as part of your property division proceeding by:
- Drafting an order that complies with the specific laws and regulations governing the retirement account
- Working with the retirement plan administrator to ensure that it will enforce the plan
- Presenting the order to the court for its approval
- Ensuring you receive the benefits awarded to you under the order
Contact Our Firm Today for Help with Iowa Divorce Retirement Account Division
When you get divorced, you may have to divide your retirement assets. A QDRO can help you facilitate the division of retirement assets without jeopardizing your account or facing tax consequences. Contact Arenson Law Group, PC at (319) 220-6700 today for a confidential consultation with an experienced divorce attorney to learn more about QDRO in an Iowa divorce.