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Taxes A to Z: “Q is for QDRO”

by Norris Law Group on July 8, 2014

Taxes A to Z: “Q is for QDRO”Kelly Phillips Erb, a tax attorney and contributor to Forbes Magazine, created a series she titled “Taxes from A to Z.” In this series, Erb attempts to simplify the US Tax Code by breaking topics down alphabetically. In a March 2014 article from this series, the letter “Q” represents “Qualified Domestic Relations Order,” or “QDRO (pronounced ‘quadro’).”

Erb explains that a QDRO is often part of a divorce proceeding involving the division of one or more retirement plans. As part of a divorce, one spouse can request that the final settlement include a judgment or decree that he or she will receive a portion of the retirement plan(s) that may been accumulating funds throughout the course of the marriage. In effect, a QDRO reassigns a portion of the retirement plan(s) into receiving spouse’s name.

A QDRO adds not only a financial benefit to a divorce settlement, but also a tax benefit. If a QDRO is drafted properly, it is set up as though the receiving spouse had always been a participant in the relevant retirement plan(s). This means that the receiving spouse would also be eligible to roll over the retirement plan(s) into another type of financial instrument (such as a regular IRA or Roth IRA) without incurring a tax penalty. Any distributions from the retirement plan(s) covered by the QDRO would, however, incur any tax penalties normally involved with regular withdrawal policies.

Title 27, Section 414(p) of the IRS Tax Code covers QDRO’s. But, as is the case with much of the US Tax Code, this section is quite complicated. An experienced attorney familiar with the drafting of QDRO’s can prove to be invaluable for those who wish to include a QDRO as part of a divorce settlement.

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County and throughout Utah and Wyoming in the areas of divorce and family law, and are renowned throughout the region for their ability to draft effective QDRO’s . Contact them today at 801-932-1238 or online for a free consultation.

 

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