Normally, when a 401(k) or a pension account is divided, early withdrawal penalties are imposed by the Internal Revenue Service.
This would make it cost-prohibitive to divide such an account in the event of a divorce. Fortunately, there are provisions in the tax code that allow these accounts to be divided between spouses as part of a divorce settlement.
That is the value and necessity of a QDRO. It allows the benefits of a retirement plan to be split between divorcing spouses without the early withdrawal fees. Two key points must be kept in mind, however: (1) A retirement plan cannot pay benefits to anyone other than the divorcing parties; and (2) A divorce decree by itself is not enough—federal law requires a QDRO.
Please feel free to contact us if you have any questions about this or any other important legal issues/inquiries.
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