845-638-4666 steven@abelqdros.com

{3 minutes to read} QDROs have long been associated with divorce, but couples who are happily married can also use a QDRO as a tax-planning or estate-planning tool. Wait, couples who are happily married? Yes, you read that correctly.

There is no requirement that a couple actually gets divorced in order to have a QDRO signed by a judge, at least not in New York. The federal law creating QDROs also does not require that anyone gets divorced in order to have a QDRO enforced by a pension plan. So, why would a happily married couple want a QDRO?

  • One of the possibilities is to transfer money from a plan that has a required minimum distribution (RMD) at the age of 70 1/2. If the other spouse is much younger, perhaps 60 years-old, using a QDRO to transfer the money from the older spouse to the younger spouse delays the taxation that would otherwise begin with the RMD. Keeping money in a tax-deferred investment for 10 years will result in much more money at the end of that 10-year period than taking it out and paying taxes on part of it every year for 10 years.
  • Another possibility is where people simply want to have more control over the investment. Some 401(k) plans have very robust choices of investment, while others don’t. By transferring money from a 401(k) to a self-directed individual retirement account (IRA), you can obtain better control over your investment choices. 
  • A QDRO can be helpful in Medicaid planning. If a spouse who might need nursing home care has substantial retirement assets, transferring them by QDRO to the other spouse can result in the sick spouse being eligible for Medicaid much earlier than otherwise. 
  • Where one of the spouses is less than 59 1/2, and the other is older than that, transferring money from the younger spouse to the older spouse would allow money to be removed from the plan without the additional 10% tax penalty imposed on people whose age is less than 59 1/2.

In order to obtain a QDRO in New York State, it is still necessary to commence a legal action in court. It is relatively simple to start a divorce action, then file the QDRO and have the judge sign it, and then withdraw the divorce action without actually getting divorced. This would be a way for a happily married couple to obtain the benefits of a QDRO without the divorce.

One big exception here is that most State and Federal retirement plans DO require a divorce. The kind of planning described here is for corporate, union and IRA plans.

Any couple wanting to take advantage of this type of planning would certainly want to consult with both accountants, financial planners, and attorneys. If you would like more information on this topic, please contact me.

Steven L. Abel, Esq.
101 South Broadway
Nyack, NY 10960
(P) 845-638-4666
(E) steven@abelqdros.com