Divorcing spouses in Florida know that they may well have to part with some of their assets as they work through the process of coming an agreement in their divorce settlement. For many couples today, a 401K account is one of the assets that may be shared between spouses as part of a divorce decree. However, it is important that people who make this agreement understand the need to use a qualified domestic relations order.
A QDRO is a legal order that allows a person to name another person as a payee on the 401K account. The United States Department of Labor explains that this is necessary because these accounts are established in one person's name only. If the account owner were to simply take a distribution from the account and hand the money over to their former spouse, the account owner could end up being assessed a high penalty for withdrawing money for purposes other than retirement.
The qualified domestic relations order allows the money to go directly to the non-account-owning spouse thereby preventing these penalties on the account owner. Additionally, tax responsibility for the amount would be with the recipient not the account owner.
Additionally a QDRO can be used to allow 401K money to be accessed to satisfy alimony awards. MarketWatch notes that the taxation on alimony is set to change next year but for divorces that are completed this year, the account owner would not have to pay taxes but instead the spouse who receives the alimony would.