A qualified domestic relations order, known as a QDRO, works for the benefit of both partners during a divorce. Your or your spouse's 403(b) account is considered part of the marital assets or property during a divorce settlement.
The QDRO implements the separation or divorce agreement so that funds are transferred properly to the other party.
The 403(b) plan is a retirement account for employees of government, schools and non-profit organizations. The account falls under IRS requirements and must go through approval by the court judge in a divorce case, as well as the plan administrator for it to be submitted for distribution to the spouse.
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You should start having a QDRO prepared by your attorney as soon as you realize a separation from your spouse will take place. In this way, the order will be ready to be signed and implemented by the time a settlement is reached.
You may lose rights to a portion or all of your spouse's funds in the 403(b) account if he or she dies, leaves employment, remarries or retires before the QDRO is submitted and approved by the court judge and plan administrator,
according to QDRO Solutions, LLC.
Discuss the split of the 403(b) account with your attorney and plan administrator to understand your rights and make sure it will be submitted properly. Transferring the agreed amount to your spouse will avoid any tax penalties for early withdrawal.
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The QDRO should follow IRS rules for divorce settlement and transfer in order to avoid tax consequences. The order should include a breakdown in percentages and dollar amounts of the account assets to be transferred so both parties are satisfied, as well as the courts and plan administrators.
The transfer of assets from the 403(b) plan must be deemed as part of a QDRO in order to avoid taxes or penalties on the amount. A spouse receiving the assets from the plan can avoid taxes or penalties by transferring the money into a qualified plan, such as an IRA. A Roth IRA will tax the portion being transferred, but no penalties will occur.
Your attorney should have experience at splitting retirement accounts. A certified divorce planner evaluates important decisions for a QDRO to avoid confusion and mistakes,
according to Investopedia.
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