Division of Colorado Retirement Plans (QDRO)

Summary: You will need a QDRO in order to divide a retirement plan like a 401(k) or a plan which provides a monthly payment for life.  Except that usually you do not need a QDRO to divide an IRA.

The Need for a QDRO in a Colorado divorce

In a Colorado divorce mediation, retirement plans are marital assets which are subject to the equitable division of property.

Usually a mediation agreement will provide that a portion of one or more retirement plans is to be transferred from one spouse to the other.

In order to avoid the income tax penalty and actual tax on a transfer of a retirement plan from one spouse to another spouse, you must use a Qualified Domestic Relations Order ("QDRO".)  A QDRO is a court order which is signed by a Colorado District Court Judge.

Otherwise, if you transfer retirement assets from one spouse to the other, the transfer is taxable to the transferor.  Additionally, if the transferor is under age 59, there is a a 10% early withdrawal penalty which is tacked on.

Except that usually an IRA can be split with a letter of instruction, instead of the more expensive QDRO.

The Final Result of a QDRO

After the QDRO is approved by the court and processed by the retirement plan administrator, a separate retirement account is set up for the spouse who receives the retirement asset (the recipient is called the Alternate Payee.)

Then that spouse is generally treated the same as a retired employee.  He or she can take a distribution or roll that account into an IRA, etc., as long as the retirement plan allows such actions.

One of our web sites which is limited to Colorado QDROs is www.qdroplan.com. There is extensive information at that site.