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Everything You Need to Know About QDROs in Wisconsin
When high net worth couples divorce, one of the most complex aspects of property division is determining how to fairly and legally divide retirement accounts. These accounts often represent a substantial portion of the marital estate and must be handled with care to avoid unnecessary taxes, penalties, or delays. In Wisconsin, one of the key tools used to divide certain retirement assets is a Qualified Domestic Relations Order, or QDRO.
Our Wisconsin divorce attorneys for high net worth divorces will walk you through the essentials of QDROs in Wisconsin divorce cases: what they are, how they work, and the critical role they play in securing a fair distribution of retirement benefits.
What Is a QDRO?
A Qualified Domestic Relations Order (QDRO) is a court order that allows a retirement plan to pay a portion of one spouse’s retirement benefits directly to the other spouse following a divorce. These orders are governed by federal law under the Employee Retirement Income Security Act of 1974 (ERISA), and they apply to most employer-sponsored retirement plans. Common examples include 401(k)s, 403(b)s, pensions, and profit-sharing plans. IRAs, on the other hand, do not require a QDRO and are instead divided using a different process under the Internal Revenue Code.
Why Are QDROs Important in High Net Worth Divorces?
In high net worth divorces, retirement accounts often contain substantial sums — sometimes hundreds of thousands or even millions of dollars. Attempting to divide these accounts without a QDRO can lead to tax consequences and early withdrawal penalties. A properly executed QDRO ensures that retirement funds are transferred tax-deferred and in accordance with federal and plan-specific rules. This helps preserve the value of the account and ensures clarity about each spouse’s share.
Additionally, a QDRO brings transparency and enforceability to the division of retirement assets, which can prevent disputes down the road.
How Are Retirement Accounts Divided in Wisconsin?
Wisconsin follows community property principles, meaning assets acquired during the marriage are presumed to be jointly owned and are typically divided equally. This includes retirement accounts, even if only one spouse’s name is on the plan. However, the court can deviate from an equal split in certain cases, especially when evaluating complex financial situations that are common in high net worth divorces.
The court may choose to divide the account evenly, assign a proportional share of future benefits in the case of pensions, or award the full value of the account to one spouse in exchange for that spouse giving up an asset of comparable value. These decisions are made on a case-by-case basis and take into account the overall financial picture.
What If I Do Not Want to Split My Retirement Accounts?
There are options available if one spouse prefers not to divide a retirement account. Spouses may agree to trade assets of equal value, so one keeps the retirement account while the other receives a different marital asset such as a home, cash, or investment portfolio. Another possibility is to negotiate a structured settlement where one spouse accepts a series of payments in place of a portion of retirement funds. Some spouses even agree to a direct cash buyout of the retirement interest.
These alternatives should be negotiated with care. It is important to assess the long-term value of assets, their liquidity, and potential tax implications before agreeing to a non-QDRO solution.
How Does the QDRO Process Work in Wisconsin?
The QDRO process begins with the court issuing a divorce judgment that outlines how the retirement assets will be divided. After this, a separate QDRO document must be drafted, which is usually handled by an attorney or financial professional with experience in these matters.
This draft is then sent to the retirement plan administrator to confirm that it complies with the plan’s rules and federal law. If approved, the document is submitted to the court to be signed by the judge. Once signed, it goes back to the plan administrator for processing. Only after this final step will the account be officially divided and funds transferred to the non-account-holding spouse, who is often referred to as the "alternate payee."
When Does the Receiving Spouse Get Paid?
The timing of payment depends on the type of retirement plan being divided. With defined contribution plans like 401(k)s, the alternate payee may be able to access their share as soon as the plan processes the QDRO. In most cases, they can choose to roll the funds into their own IRA to avoid taxes.
For defined benefit plans such as pensions, the alternate payee typically starts receiving payments when the plan participant reaches retirement age and begins collecting benefits. However, the QDRO can sometimes be written in a way that allows the alternate payee to begin receiving payments based on the earliest retirement date available to the participant, even if the participant delays retirement.
What Should Be Included in a QDRO?
A valid QDRO must clearly identify the plan and both spouses. It needs to state exactly how much of the benefit is being assigned — either as a percentage or a dollar amount — and explain how and when the benefits should be paid.
The order cannot require the plan to pay more than what is available or change the structure of benefits beyond what the plan allows. Additionally, a QDRO cannot assign the same benefit portion to more than one person. Precision and legal accuracy are essential to ensure the order is enforceable.
What About Taxes and QDROs?
One of the benefits of using a QDRO is that it allows the receiving spouse to obtain their portion of the retirement account without triggering taxes or early withdrawal penalties — provided they move the funds into a qualified account like an IRA. If the alternate payee chooses to take the funds as a cash distribution, they will be taxed at ordinary income rates, but the 10 percent early withdrawal penalty does not apply to QDRO-related transfers, even if the recipient is under 59 and a half.
What If My Spouse Has Multiple Retirement Accounts?
If there are multiple retirement plans involved, a separate QDRO will likely be required for each one. This can add to the complexity and cost, but it ensures each plan is divided correctly and that your share is protected. Because each plan administrator has their own procedures and requirements, careful coordination is needed to avoid inconsistencies or delays.
Do QDROs Apply to Government or Military Retirement Plans?
QDROs apply to private employer-sponsored plans regulated under ERISA, but they do not apply to military retirement or government pensions, such as those under the Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS). These plans are governed by separate laws and usually require different types of court orders. If your divorce involves one of these plans, you will need legal guidance to navigate the correct process.
Work With a Wisconsin High Net Worth Divorce Lawyer Who Understands QDROs
Dividing retirement accounts in a high asset divorce is not something to handle casually. Whether you are the account holder or the spouse entitled to a share, a well-drafted QDRO can protect your financial future and ensure a fair outcome.
At Gimbel, Reilly, Guerin & Brown, LLP, our Milwaukee, WI family law attorneys have extensive experience helping high net worth clients navigate the division of retirement and investment assets. We understand the importance of preserving long-term value and minimizing tax consequences. Call us at 414-271-1440 to schedule a consultation and learn how we can help protect your interests.
