Divorce is an undoubtedly challenging process, and when financial assets such as retirement benefits are involved, the complexity can escalate. It is important to understand that in Ohio, as in all other states, divorcing spouses have the right to an equitable share of marital property which encompasses retirement benefits. To facilitate the division of these benefits, qualified domestic relations orders (QDROs) play a crucial role.
Unraveling QDROs
Defined as legal orders, QDROs are essential tools used to divide specific types of retirement benefits between divorcing spouses. These court-issued orders provide retirement plan administrators with explicit instructions regarding the allocation of benefits between the two parties. Without a QDRO, a court lacks the authority to divide retirement benefits as part of a divorce settlement.
QDROs are primarily employed to divide both defined benefit plans and defined contribution plans, each of which operates differently. Defined benefit plans guarantee a specified benefit amount upon retirement, whereas defined contribution plans involve contributions from both the employee and employer, potentially yielding varying benefit amounts upon retirement.
Dividing Retirement Benefits in Ohio
Ohio law dictates that retirement benefits earned throughout the duration of the marriage are classified as marital property and are therefore subject to equitable division between spouses. Divorcing couples can agree upon the division of assets through a property settlement agreement or defer the decision to the court. Regardless of the chosen path, QDROs are required to facilitate the division of retirement benefits.
In Ohio, the division of retirement benefits is based on the proportionate share of benefits earned during the marriage. The total length of time a participant earned benefits is compared to the duration of the marriage, resulting in a fraction that is multiplied by the value of the retirement account. This calculation determines the portion that must be awarded to the non-participant spouse.
Crafting a QDRO
To satisfy legal requirements, QDRO language must be highly specific. Some retirement plans possess distinct QDRO language that must be utilized for the order to be accepted. Failure to adhere to the correct language can lead to rejection of the order, thus delaying the distribution of benefits. Consequently, it is advisable to consult with an attorney specializing in family law and QDROs to ensure compliance.
Gaining Plan Administrator Approval
Before QDROs can be implemented, they must receive approval from the plan administrator. These administrators bear the responsibility of disbursing payments to the non-participant spouse and are legally required to execute QDROs as written. However, they do possess the authority to reject orders that fail to meet legal requirements or do not align with the specific QDRO language of the plan.
QDROs and the Impact on Taxes
An important consideration when dealing with QDROs is their tax consequences. The tax treatment of retirement benefit distributions depends upon factors such as the type of retirement account, the age of the receiving spouse, and the method of asset distribution. Consulting with a tax specialist enables divorcing couples to avoid any avoidable tax liabilities.
Conclusion
Divorce is an inherently challenging process, but proper preparation and guidance from an experienced family law attorney can alleviate some of the difficulties. If you find yourself going through a divorce in Ohio and have retirement benefits that require division, obtaining a QDRO is essential to ensure the equitable distribution of marital property. To initiate the division of your retirement benefits, seek the assistance of a divorce attorney well-versed in the creation of QDROs.