Qualified Domestic Relations Order

• A qualified domestic relations order (QDRO) is the court order that defines how much of one spouse's IRA will be given to the other. It lists the accounts from which the assets are transferring and the accounts to which the assets are moving. The spouse receiving the assets needs to establish a specialized QDRO IRA to receive the assets. The QDRO cannot be filed officially and become a court order until all account numbers, balances and transfer amounts are defined specifically. After the QDRO is filed, each spouse gives a copy of the order to each respective IRA custodian to process the tax-free transfer.
  
  

Responsibilities Post QDRO

• Once the QDRO transfer is complete, each party is responsible for his own IRA. Each IRA owner determines what investments are bought and sold in the IRA, when distributions are made and for how much. Each owner is solely responsible for taxable distributions, penalties for early distributions and naming beneficiaries. IRA owners have the right to transfer, rollover or liquidate each IRA as if it were their own. At the time of the divorce, each IRA owner is allowed to name beneficiaries independent of a spouse. Most states require spouse beneficiaries automatically, but this is waived upon the execution of the QDRO.
  
  

Other Methods of Splitting

• Sometimes, whether by design or haste, an IRA owner may liquidate a portion of the IRA to give to the ex-spouse. This generates a taxable event to the IRA owner and reduces the value of the IRA because of the taxes and possible 10 percent early withdrawal tax penalty. A savvy recipient may file a petition with the court for mishandling the IRA assets. Not only does the recipient no longer get the benefit of tax-deferred growth, but there are less assets included in the division. Family court reserves the right to hold the IRA owner solely responsible for taxes and penalties and may issue greater monetary award to counter the lack of tax-deferred growth.
  
  

Considerations

• You may want to seek professional legal advice when it comes to the splitting of retirement IRA assets during a divorce. Prenuptial agreements, negotiations and state law may have a significant affect on what is required of the QDRO. Before conducting any split or transfer, you should make sure all court orders are properly filed with the court and are effective. With so many emotions playing into divorce, an innocent mistake can be viewed as malicious intent to hurt your ex-spouse.