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Why do I need a QDRO?

If you are one of the many Virginia residents who is or will be getting divorced, you should get the facts about the Qualified Domestic Relations Order. This legal order can be very beneficial to you during and after your divorce and help you avoid unnecessary taxation on divorce-related financial transactions.

Many people end up having to split the assets in their 401K accounts as part of their divorce settlements. This is one of the times when you will want to use a QDRO. Forbes explains that without a QDRO, money is not allowed to be distributed to anyone other than you from your 401K account. A QDRO, however, changes that and allows distributions to be received by your former spouse. Why would you not simply receive a distribution yourself and then turn around and give it to your ex-spouse to satisfy the agreement? Because then you would be liable for the taxes on that distribution. There may also be steep early-withdrawal penalties to pay if you do not meet retirement criteria. Even if the division of the fund is clearly called out in your divorce decree, this can happen without a QDRO.

A Qualified Domestic Relations Order can be beneficial to you for other transactions resulting from your divorce. If you wish to use money from your 401K account to pay child support or spousal support, for example, you can use a QDRO to outline those transactions. A QDRO could set up one-time payments or a series of ongoing payments and can be made to your ex-spouse, child or other dependent.

This information is not intended to provide legal advice but general information about the use of a QDRO in a Virginia divorce.

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