Many judges and lawyers are unaware that retirement funds can be transferred between spouses via a QDRO even when no divorce is filed. This is useful as part of a postnuptial agreement. A QDRO can be signed by a judge to protect the portion of a spouse’s retirement given to the other in the postnup.
A postnup might give one spouse some of the other’s retirement. The retirement plan may ignore the postnup. It is not binding on a retirement plan. The only way to make the plan give some of the funds to the other spouse is with a Qualified Domestic Relations Order (QDRO).
If a divorce occurs, the non-employee spouse might find there are no funds in the 401(K) because the other withdrew them. A QDRO when the postnup is signed will require the plan to safeguard the non-employee’s share, ensuring it’s available if a divorce occurs, or when the employee spouse dies.
After the funds are transferred into the name of the non-employee spouse via a QDRO, tax laws now apply to the non-employee spouse. That person may withdraw funds, but may have a portion withheld and owe taxes and penalties, depending on the person’s age when the withdrawal is made.
A postnup that awards a spouse some of the other’s retirement should be accompanied by a QDRO. This will increase the cost of the postnup but the added cost is minimal compared to the funds in retirement that might not be available later.