Say you have a qualified retirement plan at work (such as a profit-sharing or 401(k) plan) or a self-employed or small business retirement program (such as a “Keogh” pension plan). You’ll probably have to divide up your retirement account (or accounts) between you and your ex as part of the divorce property settlement. however, doing it carelessly can create a real tax fiasco for you.

To divide up qualified retirement plan accounts the tax-smart way, you need to establish a qualified domestic relations order, or QDRO. What’s a QDRO? It’s simply some boilerplate language that should be included in your divorce papers. First and foremost, the QDRO establishes your ex’s legal right to receive a designated percentage of your retirement account balance or designated benefit payments from your plan. the good news for you is that the QDRO also ensures that your ex, and not you, will be responsible for the related income taxes when he or she receives payouts from the plan.

The QDRO arrangement also permits your ex-spouse to withdraw his or her share of the retirement plan money and roll it over tax-free into an IRA (assuming the plan permits such a withdrawal). that way, your ex can take over management of the money while postponing income taxes until withdrawals are taken from the rollover IRA.

Divorce and Your Retirement Accounts