What Is QDRO?

A QDRO (Qualified Domestic Relations Order) is a legal document necessary when dividing a qualified retirement plan such as a 401(K) or 403(b). It is not required when dividing an IRA. A QDRO is typically prepared by the divorce attorney and costs about $1,200. If you are dividing retirement funds, you may want to consider minimizing legal fees by dividing an IRA rather than the 401(K).

Here's an example: If you have a 401(K) with $50,000 and and IRA with $100,000 your total retirement funds are $150,000. If the assets will be divided 50/50 then each spouse should receive $75,000. One option would be for each spouse to receive half of the 401(K) and IRA. A QDRO would be required with this division. Another option would be for the spouse who earned the 401(K) funds to keep these funds of $50,000 and receive $25,000 from the IRA account. A QDRO would not be necessary and you'd save the $1,200 QDRO fee. This example demonstrates that getting a financially smart divorce requires reviewing all of the financial details so you can make informed choices.