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NC Divorce CPA explains QDRO | Qualified Domestic Relations Order | Divorce Retirement Plan Issues

Divorce CPA in Wilmington NC discusses QDROs

Gary Bode, CPA: divorce CPAs help avoid adverse tax consequences. For a free initial consult, please call 399-2705.

Divorce CPAs provide proactive tax planning for the attorney and client. A QDRO, Qualified Domestic Relations Order, directs distribution of retirement plan assets during divorce. QDROs create an alternate payee for the retirement assets which the judge then directs to a spouse or child. Too often, divorce CPAs clean up taxation issues that sh0uld have been avoided. Like all IRS issues, there are lots of details with QDROs.

“If you simply take out money from your retirement plan and pay your spouse, the withdrawal becomes immediately taxable. If you’re less than 59.5 years old, the additional 10% IRS tax rubs salt in the wound. To preserve the IRS tax deferred status of the distributed retirement funds, the QDRO must conform to certain wording and provisional conditions.”
Gary Bode, divorce CPA and tax accountant

During Divorce, can a QDRO be used for all Retirement plans?

No, and it pays to ascertain the exact type of retirement plan or pension being negotiated. I know that sounds basic. In the case of a retirement plan excluded from QDRO treatment, a structured multi-year payment schedule might reduce the tax consequences of a lump sum payment.

Amount of Awarded Distribution during Divorce

You don’t have to be a divorce CPA to imagine valuation issues. Like:

  • What date should be used for the valuation?
  • Did the employee spouse have retirement assets before the marriage?
  • Will the receiving ex-spouse get the remaining retirement assets if the employee ex-spouse dies first?
  • What happens if there is an outstanding loan from the retirement plan?
  • How much does the ex-spouse receive of a true pension?
  • What about the earning and losses of the retirement funds during the time frame of the divorce’s QDRO date and the actual distribution?

NC Governmental Retirement Plans during Divorce; an example

Divorce CPAs need to look at State issues with QDROs. Some State Plans, like Georgia, can’t be split. But NC recognizes the need to split NC employee retirement assets during divorce and provide several model Domestic Relation Orders on their website. However, governmental retirement assets lack some protection common in private plans. If you’re on the receiving end of the divorce, make sure the lawyer locks down the governmental retirement benefits such that your ex-spouse can’t withdraw them or make changes in beneficiaries.

Actual Fund Transfer Technique

To avoid immediate taxation for the both ex-spouses, your divorce CPA will recommend direct rollover from the employee ex-spouse’s account to the Trustee to the retirement account of the receiving ex-spouse. As with all IRS issues, wrinkles exist. For example, a lump sum payment may qualify for special averaging rules.

I’m a divorce CPA in Wilmington NC. Too often, CPAs just clean up tax matters after the dust settles in a divorce. This can mean adverse tax consequence to both ex-spouses. I’ve been through a divorce and know full well how rancor distorts good judgment. Financial consequences of divorce make healing more difficult. Read some of our other divorce CPA posts to gauge our expertise and empathetic attitude. For a free initial consult with a divorce CPA, please call (910) 399-2705.

2 comments to NC Divorce CPA explains QDRO | Qualified Domestic Relations Order | Divorce Retirement Plan Issues

  • Chris Carter

    I retired from the state of nc at the end of january last year. I, unfortunately, made the mistake of getting married once in my life, then later divorced, and when I retired, a portion of my retirement, in the form of a QDRO goes to my ex for the rest of my life. Yay! (If you couldn’t tell by now, I’m very bitter about this.) On the 1099R form I received from the retirement system it shows the full gross amount I received last year for tax purposes, even though I didn’t get the full benefit of that amount because of the QDRO. Why should I have to pay taxes on the full amount? Does she have to pay any taxes on what she received?

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