Certain property rights or ownership may be transferred through a qualified domestic relations order (QDRO). A QDRO may involve paying benefits from a pension or profit-sharing plan to someone other than the participant; paying child support, alimony, or marital property rights; or it may specify the amount or portion of a participant’s benefits that must be paid to the participant’s spouse, former spouse, or dependents.
How the benefits of a particular plan are taxed will depend on whether, under the QDRO, the benefits are paid to the plan participant’s child or dependent, or to the participant’s spouse or former spouse.
If the benefits are paid to the participant’s child or dependent under a QDRO, they are treated as having been paid to the participant and are subject to the tax rules that would apply for the participant.
If the benefits are paid to the participant’s spouse or former spouse, the benefits generally must be included in the spouse’s or former spouse’s income for tax purposes. If the participant has an investment in the plan, this cost may be prorated and assigned to the receiving spouse or former spouse in order to determine the taxable amount of the benefits. If benefits are paid in a lump sum distribution, the spouse or former spouse can use the special tax rules on lump sum distributions, as if the distribution had been made to the plan participant. Eligible rollover distributions received by a spouse or former spouse under a QDRO may be rolled over tax-free into a qualified IRA or other qualified retirement plan.
Individual Retirement Arrangements and Health Accounts
If all or part of your traditional IRA is transferred to your spouse or former spouse as a result of a divorce, the transfer is not a taxable transfer. Starting from the date of the transfer, the IRA is considered to be your spouse’s or former spouse’s IRA.
The same is true for transfers of Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs).