A qualified domestic relations order is a unique type of court order that gives a divorcing spouse rights to his soon-to-be ex-spouse’s retirement plan. In such a case, one divorcing spouse is given the right to receive a portion of the other spouse's retirement plan benefits. This means, the spouse who obtains rights to the retirement plan may be able to withdraw his portion of the money as long as he withdraws the money in a way that is consistent with the retirement plans rules. In such a case, however, the spouse who was granted the rights to the retirement plan would normally have to pay taxes on it — the taxes would not typically be the responsibility of the person who holds the account.
When a couple divorces, there is often a range of financial assets that have to be divided. Sometimes one of these is a retirement account. In some cases, a qualified domestic relations order is granted to split the funds in the retirement plan. The rights to the plan may be split in a number of different ways; it’s not always a 50-50 split. Sometimes this order is even granted in order to have one spouse pay money he owes to the other spouse, such as past-due alimony.
Sometimes a spouse who receives rights to the other spouse’s retirement plan has to wait until the plan holder retires or reaches retirement age to get his portion of the money from the plan. This is not always the case, however. In some cases, a retirement plan's rules may allow for immediate payment, installment payments, or early withdrawals based on the new payee's preferences. Basically, it is not up to either spouse or even a judge to decide when the money can be given to the new payee. Instead, the rules of the particular retirement plan govern when the new payee can receive his portion of the money.
Taxes are often a point of concern for divorcing spouses who are dealing with a qualified domestic relations order. This is due to the fact that money withdrawn from a retirement plan is often taxed as income. In most cases, however, it is the new payee, rather than the retirement plan holder, who is responsible for taxes on any money received by the new payee. If rights to a retirement plan are divided without a qualified domestic relations order, however, the plan holder may be responsible for taxes on his ex-spouse’s withdrawals.
