(LifeWire) - A qualified domestic relations order is a legal document that splits an investor's retirement account with a spouse, an ex-spouse or a dependent. It is most often used in divorce cases.
The QDRO is called "qualified" because it applies only to assets held in retirement plans, such as 401(k)s, 403(b)s, IRAs, Keoghs or traditional pension plans, that are qualified for special tax treatment under the Employee Retirement Income Security Act of 1974.
In effect, a QDRO allows money inside such plans to be distributed to another owner without facing the taxes and penalties that an early distribution would normally face.
How a Qualified Domestic Relations Order Works
Any QDRO must be issued by a state court or agency that can issue decrees under the state's domestic relations law.
The order must follow the rules of the original plan -- it can't, for example, order any increase in the original plan's benefits.
To maintain the original account's tax-deferred status -- or in the case of a Roth, its continued tax-free status -- the distribution must be transferred into another qualified retirement plan. That usually is an individual retirement account owned by the person who receives it.
In addition to accounts like a 401(k), which have an asset value but no guaranteed payout, a QDRO can also split guaranteed income streams from traditional pensions.
What Is Required in a Qualified Domestic Relations Order
A QDRO must include: the full name and last known mailing address of the original plan-owner and the person who is receiving the distribution; Social Security numbers for both; the formal name of the original plan; the plan's identification number; and the amount payable to the new owner or, in the case of a pension, the amount of time that benefits are to be paid to the new owner.
The administrator of the original plan has the power to determine whether any proposed order is actually qualified.