QDRO (Qualified Domestic Relations Order)
A court order dividing retirement plan benefits between divorcing spouses without tax penalties.
What is QDRO?
A Qualified Domestic Relations Order (QDRO) is a judgment, decree, or court order that creates or recognizes the right of an alternate payee — typically a divorcing spouse — to receive all or a portion of a participant's retirement plan benefits under a qualified plan (401k, 403b, pension). Under federal ERISA law, a QDRO allows the transfer of retirement assets from one spouse's plan directly to the other spouse's IRA or retirement account without triggering income taxes or the 10% early withdrawal penalty that would normally apply. The plan administrator must review and approve the QDRO to ensure it meets legal requirements before processing the transfer. QDROs do not apply to IRAs, which are divided under divorce decrees through direct transfers.
Example
In a divorce settlement, a spouse is awarded 40% of her husband's $300,000 401(k) balance. The divorce attorney drafts a QDRO specifying the division terms. The plan administrator reviews and approves the order, then transfers $120,000 directly into the spouse's newly established rollover IRA. No taxes or penalties are due on the transfer — the funds remain tax-deferred in the receiving spouse's IRA until she takes distributions in retirement.
Source: IRS — QDROs: The Division of Retirement Benefits Through Qualified Domestic Relations Orders