Michigan Divorce 101: What Is a QDRO?

In theory, property division in Michigan is a straightforward process. The court first identifies the marital assets of the parties, which includes almost every asset and item of property acquired or contributed to during the marriage. Retirement accounts are one such asset. The court then divides those assets fairly and equitably.

In practice, the division of assets, like certain retirement accounts, can present difficulties and challenges. For example, taking distributions from one’s 401(k) or pension to satisfy a property division can result in penalties and tax consequences.

In such situations, carrying out the court’s orders may require using a qualified domestic relations order (QDRO).

Defining a Valid QDRO

A qualified domestic relations order is a state-issued order made in a domestic case that recognizes another person’s right to the proceeds of certain retirement accounts. This allows distributions to be made from the retirement account without the penalties and taxes that normally accompany distributions.

A QDRO must be issued by a court or other recognized state authority to be valid for this purpose. This means that a property settlement agreement made in a divorce proceeding is not a QDRO unless the judge actually signs it or issues a judgment pursuant to it.

IRAs Are Treated Differently Than Pensions and Other Retirement Accounts

Not all retirement accounts require the court to issue a QDRO. Individual retirement accounts (IRAs) are a notable exception. If the court orders you to distribute some of your IRA balance to your ex-spouse, you can do so without needing a QDRO to do it. You would still benefit from the help of an experienced Michigan divorce lawyer in fulfilling the court’s order.

Alternatives to a QDRO

Just because a pension or 401(k) might be considered marital property does not mean it must be divided as part of the court’s property division orders. One effective way to avoid a QDRO is to reach an agreement with your ex-spouse that does not divide any retirement account.

For example, suppose that you have a pension in which your ex would otherwise have an interest. You could make a cash payment to your ex and “buy out” their interest as part of a property settlement agreement. Or you could agree that your ex takes certain other property or assets besides an interest in the retirement account. Neither option would require you to create a QDRO.

Get Assistance With Michigan Property Division

Dealing with QDROs and retirement accounts illustrates the fact that even simple divorces can quickly become complicated and cause headaches. However, a seasoned Michigan divorce lawyer from Gucciardo Family Law can make the divorce process easier and less stressful.

Our firm can advise you on ways to fairly and equitably divide your marital property with your ex that are simple and will meet with the court’s approval.

If a QDRO is required, we will ensure one is prepared and properly executed so that you can comply with the court’s order without incurring unfair and unnecessary penalties.

Contact Gucciardo Family Law today to get started.