IRA DROs Explained


What is the most important general information to know?

IRA division covers any individual provided IRA (Traditional, Rollover, or Roth) and any employer provided IRA (SEP, SARSEP, or Simple). A non-taxable IRA to IRA transfer in divorce is governed by Internal Revenue Code (IRC) §§ 408(d)(6). An IRA division can be completed in the divorce judgment or in a separate IRC §§ 408(d)(6) Order (“408 Order).”

The most common mistake made in dividing an IRA is to award the alternate payee a percentage or amount as of a specific date plus investment earnings and/or losses thereon.  An IRA can ONLY be divided as of the date the IRA custodian divides the IRA Account (Date of Implementation).

An IRA to IRA transfer under IRC §§408 must be “incident to divorce.” Make sure any court ordered transfer does not occur until after divorce or legal separation. A participant should refrain from making any additional IRA contributions or withdrawal until after the transfer is complete.

Do I need a QDRO to divide an IRA?

In most cases, you do not need a QDRO to divide an IRA so long as the award in your divorce judgment language sufficiently describes the award. It is critical to have clear Judgment Language so that the IRA Custodian can implement an IRA to IRA transfer based on the divorce judgment. The division of the IRA using our Judgment language tool should in all but the rarest cases be sufficient for the IRA Custodian to implement an IRA to IRA transfer without tax consequences to either spouse, unless it is an employer provided IRA.

What are the common reasons a post judgment IRA domestic relation order is needed?

An IRA division can be completed in the divorce judgment or in a separate IRC §§ 408(d)(6) Order (408 Order). You should not need to prepare a separate 408 Order unless one of the following occurs:

(1) The participant may not cooperate with signing transfer documents and you need an order with extra enforcement language;

(2) The IRA is an employer provided IRA (SEP, SARSEP, or Simple) and is requiring a QDRO that complies with the Employee Retirement Income Security Act (ERISA). Our IRA DROs not only comply with the relevant Internal Revenue Code sections for divorce, but also comply with ERISA;

(3) The parties do not want to disclose the terms of the full Judgment to the Custodian;

(4) You did not use our sample judgment language and therefore the award in the divorce judgment is not sufficient.

If you are not sure whether a 408 Order is needed, we recommend proceeding with filing the 408 Order in addition to the Judgment.


Does an IRA DRO cover all types of IRAs?

Language: The following language or similar language should be in all 408 Orders:

For purposes of this Order, IRA Account(s) shall include any individual provided IRA (Traditional, Rollover, or Roth) and any employer provided IRA (SEP, SARSEP, or Simple) which shall be referred to collectively as IRA, if applicable.

Explanation:  Our IRA DROs cover any type of individual retirement account.

Is a QDRO required for an employer provided IRA (SEP, SARSEP, or Simple)?

Explanation:  The answer is maybe. An employer provided IRA is an individual retirement account established or maintained for an individual by the individual’s employer or by an employee organization of which the individual is a member, and therefore it would be covered by Parts 1 and 4 of Title I of ERISA. Basically, an employer provided IRA is neither all fish nor all fowl. The employer part is subject to ERISA, but the pension is funded by an IRA, which is not. See ERISA Opinion Letter 75-14 (Sept. 30, 1975).

Most custodians will divide the employer provided IRA under IRC § 408 based on the division in the divorce judgment if sufficiently clear. Some will require a QDRO. QDROCounsel’s IRC § 408(d)(6) Order (408 Order) satisfies both the provisions of § 206(d)(3) of ERISA, and § 408(d)(6) of the Code to have all bases covered. The tax effect is controlled by § 408(d)(6) in all events.  QDROCounsel recommends that our 408 Order be prepared for any employer provided IRA in order to also comply with ERISA.

What information should be included to identify the IRA?

Explanation: You should identify the IRA Custodian and at least the last 4 or 5 digits of the account number for the IRA in the divorce judgment or the IRC § 408 Order (408 Order). You will need to provide the IRA Custodian with as much of the account number as possible under separate cover when you serve the filed Judgment and/or the 408 Order on the IRA Custodian for implementation.

What is the most common IRA division award (DEFAULT OPTION) to Alternate Payee?

Language: The following language or similar language is in most divorce judgments or IRC § 408 Orders?

Upon receipt of a conformed copy of this Order and the Judgment of Dissolution, the Participant and the Custodian of the IRA shall cause [insert percentage] or [insert amount] to be transferred pro rata to Alternate Payee from all investments maintained in the IRA as of the date this order is implemented by Custodian. The transfer shall be via a Custodian to Custodian transfer to an IRA established for the benefit of Alternate Payee. Such transfer shall be in conformance with IRC §408 and non-taxable to either spouse.


Explanation: A percentage award of the total IRA account balance should be awarded to the alternate payee in most cases. The Default Option of 50% of the total IRA balance as of the date the IRA custodian divides the IRA is most common award so long as there is no separate property interest the IRA. When the percentage to award an alternate payee is not 50%, then Option 1 is to input a different percentage award based on the parties’ agreement or court order. Option 1 occurs in most cases when there is an equalization and offset or separate property interest in the IRA.

WARNING: An IRA can ONLY be divided as of the date the IRA custodian divides the IRA (Date of Implementation). If there is a separate property interest in this IRA and you have not done so already, go to the Calculation Suite to calculate the Alternate Payee’s community/marital interest in the IRA.

Amount Award: An amount awarded in an IRA usually only occurs when the parties agree or the court so orders. Generally, an amount awarded happens when there is an equalization and offset AND it is determined that no investment earnings and/or losses will apply to the amount awarded.

WARNING: An IRA can ONLY be divided as of the date the IRA custodian divides the IRA (Date of Implementation). If the Alternate Payee should receive investment earnings and/or losses on the specific dollar amount awarded, do NOT select award an amount. You should convert that dollar amount into a percentage in order for the Alternate Payee to receive investment earnings and/or losses in the IRA.

Can I award multiple IRA accounts in the same IRA DRO?

Explanation:  You can award different percentages for different IRAs with the same custodian. However, you will need to prepare separate IRA domestic relations orders if (1) you want to award different amounts in each IRA with the same custodian, or (2) if you want to award an amount in one IRA and a percentage with another IRA.

Why is enforcement language needed to complete the IRA to IRA transfer?

Language: The following language or similar language should be in all IRC §408 Orders:

Execution of Further Documents and Forms. Participant and Alternate Payee are ordered to prepare, execute or otherwise comply with all requests of Custodian which may be necessary to carry out the terms of this Order and to timely submit to Custodian all documents including releases that are required to finalize this Order. Any party which fails to execute any such necessary documents shall pay the other party’s attorney’s fees relative to such refusal, including but not limited to negotiating time, communication and correspondence, preparation of court documents and appearance time for same.

Clerk of Court Can Complete Required Documentation. Should either party refuse or fail to sign, execute, or prepare such documentation, the clerk of the court upon ex-parte presentation, shall execute any and all documents necessary to complete the transfers in the place of the party failing to complete the required documentation. The Custodian is ordered to accept certified execution of the documentation by the clerk of the court in lieu of any Signature Guarantee, Medallion Guarantee or other similar requirements normally required of either party by the Custodian. Custodian is further ordered to provide any and all information regarding Participant’s accounts including account numbers, balances, investments etc. which may be necessary to effectuate transfer pursuant to this Order. The information shall be provided without further order or subpoena of this court or an authorization from the Participant, and shall be provided to Alternate Payee and/ or Alternate Payee’s representative upon written request.

Explanation: Completing an IRA to IRA transfer requires both parties’ cooperation. The parties will be required to complete forms many times with a “signature or medallion guarantee.” Many custodians will require a Letter of Instruction (“LOI”) which must include the account name and number, and reiterate the percentage of the account that was awarded to the alternate payee. The LOI must be signature guaranteed by a bank. Often financial planners provide assistance in completing the LOI and any additional forms.

We include enforcement language in the IRA DRO in an attempt to encourage the parties to cooperate or if one party is uncooperative to attempt to order the IRA Custodian to accept the clerk of court completing the documentation. It may take some convincing the IRA Custodian to accept the court clerk’s completion of documentation, but most IRA Custodian will comply with the court order.

After the Order has been served on the IRA for implementation, the parties should contact the IRA Custodian directly for further detailed information regarding implementation.

How long will it take to complete the IRA to IRA transfer?

Language: The following language or similar language should be in all IRC §408 Orders:

Account Custodian is ordered by this court to effectuate division and pay out of the IRA pursuant to this order as soon as administratively possible following service of this Order.

Explanation: The Custodian is ordered to transfer as soon as administratively possible. We recommend contacting the IRA Custodian within two weeks after service of the IRC §408 Order to work through the transfer process.

What are the tax implications with an IRC §408 Order?

Language: The following language or similar language should be in all IRC §408 Orders:

The transfer of funds from IRA to IRA outlined in Paragraph III.B shall comply with IRC §408(d)(6) as a nontaxable transfer. Participant and Alternate Payee shall each bear all future income taxes incidental to their respective receipts of the Account distribution(s).

Explanation: The transfer of funds from Participant’s IRA to Alternate Payee’s IRA complies with IRC §408(d)(6) as a nontaxable transfer. However, unlike QDROs for ERISA covered defined contribution plans, if the Alternate Payee elects to take an immediate distribution from Participant’s IRA, and the Alternate Payee is not 59 ½ years old, the Alternate Payee will be responsible for taxes and early withdrawal penalties. There is no early withdrawal penalty exemption under IRC § 72(t)(2) when an Alternate Payee takes a distribution from Participant’s IRA. (There is an exception to the penalty for distributions in substantially equal periodic payments).

What are alternate payee’s options when facilitating an IRA to IRA transfer?

There are various options that can be utilized when the Alternate Payee’s share is transferred from the participant’s plan, some of those can be tax-free transfers but some can incur tax liabilities.

The details of that can be found on the IRS website.

When should I change my designation of beneficiary?

Language: The following language or similar language should be in all IRC §408 Orders:

Both parties hereby understand and acknowledge that any spouse beneficiary designation is automatically revoked upon dissolution of marriage, and neither party wishes to oppose that revocation.

Explanation: Participant must designate a new beneficiary upon dissolution of marriage. Most states have an automatic revocation of any spouse beneficiary designation (e.g. California Probate Code §5040 which applies to non-ERISA plans such as an IRA).

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