In order to properly manage the financial implications of a QDRO you need to involve a financial divorce expert in the process. Ideally you would involve a financial divorce architect as these professionals understand how the “divorce chess board” works, even if you are addressing this issue after your divorce is settled. The financial divorce expert would need the plan administrator to provide her or him access to the plan and the participant benefit information. The financial divorce expert who is skilled in divorce proceedings will review this information to help prepare and manage the financial risks associated to the QDRO.

Any tax ramifications associated to a QDRO?

If you receive any distributions from a retirement plan without being formally approved as an alternate payee — or where the retirement plan has not been properly executed as a QDRO — the recipient of the distribution will generate taxable income for the participant. However, if the distribution is made to an approved, alternate payee there is generally no tax consequences for the participant. The plan participant would have approved the QDRO. By approving of the QDRO the plan participant is recognizing the alternate payee as an additional participant in the plan for a designated period of time. As an additional participant in the plan, the alternate payee would not be taxed on the allocation of funds in her or his name until he or she withdraws them from the retirement plan.

It is important to note, the 10% early withdrawal penalty under Section 72(t) will not apply to these distributions. If the alternate payee receives a distribution and is not subject to the required minimum distribution rules that arise at age 701/2, then the alternate payee can rollover any distributions received into an individual IRA without any tax consequences. This assumes the rollover is done within 60 days. Ideally the distribution is made between institutions to avoid any concerns and not paid directly to the alternate payee. Why? If a payment is made directly to the spouse or former spouse the plan administrator is required to withhold 20% of the distribution for federal tax purposes. This withholding would be reported on your individual tax return as an additional withholding. This would reduce how much money you have in your pocket in the short term. You may get the funds back after you file your tax return depending on whether you are deemed eligible to receive a tax refund. If the alternate payee is a child (not an existing spouse or former spouse) the participant will be treated as the payee and the plan administrator will withhold 20% of the distribution unless the participant elects to not have the withholding rules apply.

What does the financial divorce expert need?

The financial divorce expert needs to request from the administrator:

  • A summary plan description
  • Plan documents
  • Individual benefit and accounts statements
  • Any model QDROs developed for use by the plan

The financial divorce expert should also ensure there is a process to provide preliminary or interim review of the orders. In other words, the financial divorce expert’s role is to minimize the submission of deficient orders and therefore reduce the burden and costs associated with the plan administrator’s approval process.

How the asset is divided is subject to question and the appropriate questions need to be flushed out. It is important to recognize the benefits consist of two types: 

  • Benefits paid to the participant or participants during the retirement period
  • Any benefits paid to a participant after the participant passes away, commonly referred to as a survivor benefit

If the plan provides for a survivor benefit this issue needs to be brought forth and handled appropriately. Said differently, the term of the benefit payment to an alternate payee may impact the survivor’s benefit, if such a person is named in the retirement plan.

About the Author

Larry Smith is a Founding Partner of Divorce Outcomes, a specialized professional services firm that manages all of the financial aspects in a divorce process. Since 2003 he has worked as a trusted financial advisor, financial advocate, divorce architect and technical financial expert; he is not an attorney. He is an alumni of KPMG and Andersen with expertise in technical accounting, forensics, sophisticated taxation, management consulting, risk management, advanced process engineering, business combinations, divorce management, multi-party negotiations, advanced quality analytics and cognitive performance technologies. Since 1986 Larry has been advising individuals and organizations about innovative financial solutions to resolve complex financial challenges that arise in life and in business.

For both personal and business divorces, Larry is considered an expert in divorce strategies, divorce process management, financial divorce architecture, financial risk management, taxation for divorces, financial divorce forensics, advanced divorce analytics, financial divorce negotiations and mediation, business valuations and sophisticated equity structures. He helps clients shape complex financial decisions, manage communication risks and ever-changing negotiating positions to strategically preserve or grow wealth from these types of transactions.

If You Have a Question

If you have a question, feel free to contact me at [email protected] or 617-680-5222. The call is free. I will spend 30–60 minutes with you. I will provide you an honest assessment as to where I think you are positioned in your divorce process or answer any questions you have. I may provide you some guidance, insight or advice that you can take with you as you wish. There is no obligation to move forward. The phone call is designed to ease your fears, provide you some options to pursue and a potential road to run on that can lead you down a path to achieve a successful outcome.

About Divorce Outcomes

Divorce Outcomes is a specialty services firm that helps people both domestically and internationally manage all of the financial decisions that arise in their divorce process. We are not attorneys. We are financial experts who partner with our clients as their personal financial advocates. We help our clients manage their divorce process, uncover hidden financial risks, architect divorce solutions, manage ever-changing negotiating positions, communicate complex financial matters and close the divorce process as soon as possible with a goal to arrive at the best outcomes possible. Throughout the process we evaluate the current state of our clients’ financial lives with an objective to best reposition their future. We do not sell any products. We simply raise issues that are in our clients best interest. Our clients share with us we:

  • unfold, analyze and repackage their financial life so they are well positioned after their divorce
  • preserve the value of their business or marital estate
  • continuously strive to provide a return on our services
  • build balanced financial solutions grounded in evidence
  • find ways to make our client, and at times both parties, money through the process
  • design their divorce to work for them and their family’s life
  • provide mental clarity to make decisions
  • reduce the total process time from start to close
  • minimize the stress and unpleasant memories that can last a lifetime

As we reach an agreed upon settlement structure, we help our clients identify a fitting attorney who can leverage the financial solution to draft and record the requisite legal documents. Where outcomes are at risk from a traditional process, we function as expert financial negotiators or financial mediators to turn around the situation and achieve our client’s desired outcomes.

Learn more about us at or review our blogs to gain a clearer understanding about our approach and how we maximize the financial outcomes for our clients.


This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute formal advice or a recommended course of action as every person’s situation is unique and different. The information here is not intended to be, and should not be, relied upon by the recipient to make a decision without professional guidance.

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