Why they are different

Three things set retirement assets apart from a savings account. They are usually tax-deferred, so the balance on the statement is not the amount you would actually receive. They are often governed by federal rules as well as state law. And in many cases they cannot simply be transferred: dividing them requires a specific court order sent to the plan administrator.

What a QDRO is

A Qualified Domestic Relations Order is a separate court order that instructs a retirement plan to pay part of one person’s benefit to the other. It applies to employer-sponsored plans such as a 401(k), 403(b) or a defined benefit pension. Without it, the plan administrator generally will not act, no matter what your divorce agreement says.

QDROs are usually drafted by a specialist rather than by the mediator, they carry their own cost, and the plan administrator often has to approve the wording. Build both the time and the fee into your planning. IRAs work differently and are typically divided by a transfer incident to divorce rather than a QDRO, but they still need to be handled correctly to avoid a taxable event.

What to establish before you agree a split

• Which type of plan each account is, because the mechanism differs.
• How much of the balance was built up during the marriage, since the pre-marital portion may be separate property.
• For a defined benefit pension, what it is actually worth, which usually needs an actuarial valuation rather than a statement figure.
• Whether survivor benefits are being preserved, and for whom.
• Who pays for the QDRO to be drafted and processed.

The mistake to avoid

People agree a division in mediation, finalise the divorce, and then never complete the QDRO. Years later the account has been drawn down, the plan has changed hands, or the member has died, and the share that was agreed is difficult or impossible to recover. If your settlement involves dividing a retirement plan, treat completing the order as part of the settlement, not as paperwork to get round to.