How Do We Actually Divide Retirement Accounts, A.K.A., What Is a QDRO?

So, you’ve agreed on how to divide retirement accounts. Now, the question becomes: how do you actually divide the accounts?

Depending on what type of account it is (401(k) vs. pension), the answer is different. Let’s talk about the most common scenarios.

First, 401(k)s. Splitting a 401(k) is an administrative task. In essence, you give the 401(k) company the retirement account division, and paperwork is generated to reflect that division. Once the paperwork is finalized, the company will create a new 401(k) account. In this new account is placed the share of the 401(k) of the spouse whose name is not on the 401(k).

Sorry, that got a little complicated. Let me give an example. Husband has a 401(k) worth $100,000. Wife is awarded half of the 401(k). After the paperwork is finalized, the 401(k) company created a separate 401(k) account for Wife and places in it $50,000.

Second, pensions. To split a pension, you need a Qualified Domestic Relations Order (QDRO). A QDRO is an order from a court splitting up a pension, or other certain retirement funds, and directing the pension company to make the split as ordered.

When a pension company gets a QDRO, it notes the division in its system. When the pension starts paying, the payments go out to each spouse according to the split in the QDRO.

Let me give an example. Wife has a pension that pays out $5000 per month when she retires. Husband is awarded 50% of the pension and a QDRO is done. When Wife retires, the pension company will send $2500 per month to Wife and $2500 per month to Husband.

Unlike a 401(k), Husband will not have his own pension account. Instead, he will simply receive whatever cut of the retirement he is awarded in the QDRO.

(Note: when there’s a pension, everyone has to wait to get paid until retirement. There is no real way to cash out the pension, or receive payments, before retirement takes place.)

There Are Other Scenarios

I’ve explained the two most common scenarios for how retirement accounts are actually split. Some more exotic types of retirement accounts require different types of court orders to split, but even those tend to follow the same procedure as QDROs.