In Colorado, once your divorce is finalized, your attorney will work on all the formalities involved in dividing the retirement assets. That is done using an instrument called a Qualified Domestic Relations Order.
Colorado being a community property state, the marital property is divided between each spouse. That includes your retirement plans, pension plans, your 401 (k) plans and other forms of retirement benefits. Your retirement assets with the exception of your IRAs can be divided post-divorce using a Qualified Domestic Relations Order.
The Qualified Domestic Relations Order or QDRO is a court order which is signed by a judge. The order is used to divide the retirement assets after divorce. A retirement plan administrator needs to approve and accept the QDRO. The QDRO must be prepared by an attorney, because the judge will not review it before he signs off on it. That means that any mistakes that are made in filing a Qualified Domestic Relations Order, could actually have a long-term financial impact on the rest of your life. Discuss a Qualified Domestic Relations Order with a Colorado divorce lawyer to avoid mistakes that could cost you financially. There are deadlines that must be met. For instance, these orders are sent to the court at the same time as the decree of dissolution of marriage. Any delays could prove costly.
QDROs are also used to avoid the taxes that can apply to such division of retirement assets. Under tax laws, early withdrawals or transfers from your retirement fund can be taxed at a 10% penalty. Those kinds of tax penalties can be avoided using QDROs.
There are complications that your Colorado divorce attorney can watch out for to protect your interests. For instance, there may be an impact on the benefits if one of the participants in the plan dies after the QDRO has been approved and accepted. An attorney will be able to help you avoid taxes, and explain to you how these legal instruments will work.