If you are about to embark on a divorce in Pennsylvania or maybe have already gotten the process underway, you will no doubt quickly come upon many questions that need to be answered as you and your spouse work out the details of your divorce settlement. What will you do with your house? What happens to the timeshare? Will you split the assets in your 401K account?
If you answered affirmatively to this last question, you will want to be sure that you use a qualified domestic relations order. As the United States Department of Labor explains, a QDRO is a document that essentially makes it legal for your spouse to receive money directly from your 401K. This is a big benefit to you because it helps you avoid paying early penalties and some taxes.
If you took money from your 401K and gave it to your spouse to satisfy your property division agreement, you may be required to pay early withdrawal fees and taxes on however much you withdrew. Depending on the amount, those penalties and taxes could represent a sizeable portion of whatever retirement funds you have left. The QDRO allows you to bypass these and even transfers tax liability to your spouse. If the money is reinvested into another retirement account, your spouse may be able to avoid paying taxes at the time of distribution.
This information is not intended to provide legal advice but is instead meant to give divorcing Pennsylvania spouses an overview of what a qualified domestic relations order is and why you may need one.