The most common use of a QDRO is to divide retirement accounts or pension plans into an equitable distribution of marital assets. For example, let’s assume Husband and Wife accumulated $250,000 in a 401(k) account in the Husband’s name during the marriage. Since this account was accumulated during the marriage, it is a marital asset subject to equitable distribution. So how would this 401(k) get divided? Generally, all marital assets are divided equally between Husband and Wife. But rather than ordering one spouse to make a withdrawal of funds to pay the other spouse his or her share of the 401(k), the court could enter a QDRO, ordering a payment to an alternative payee, i.e., the former spouse. In other words, the QDRO would require the transfer of $125,000 from the Husband’s account to a new account established for the Wife. When doing so, the transfer would not be subject to the 10% penalty imposed by the IRS for premature withdrawals from a 401(k).
