QDROs: Crunching the Numbers for Financial and Retirement Planning

When most people hear the term Qualified Domestic Relations Order (or QDRO, pronounced “quah-dro”), they immediately think divorce. And that’s fair — for decades, QDROs have mostly shown up in courtrooms when couples split up and need to divide retirement accounts like pensions and 401(k)s.

But here’s the twist: you don’t have to be divorcing to use one.

In fact, a growing number of financial advisors and family attorneys are using QDRO's to help married couples unlock powerful retirement and tax strategies while they’re still happily married. Think of it as a little-known door hidden inside the tax code — one that lets couples move money around between each other in smart ways that delay taxes, fund retirements, and even protect assets from nursing-home costs.

Let’s break it down in plain English.

What Is a QDRO?

Congress created QDROs back in 1984 by tweaking ERISA, the federal law that governs pensions and 401(k) plans. The idea was simple: if a marriage ended, there needed to be a clean, legal way to divide retirement money between the spouses. A QDRO is the court order that tells the retirement plan to split the account.

Here’s what’s interesting: while everyone assumed this tool was only for divorce, the law itself never actually said so. The statute just says a QDRO can recognize the rights of a spouse, former spouse, child, or dependent. Notice the word spouse. Not “ex-spouse.” Just spouse.

That one word opened the door!

Attorneys, like those at Ovando Bowen LLP, eventually realized, nothing in the law prevents a couple who’s still married from using a QDRO between themselves. If state law allows spouses to make contracts with each other (and in most states it does), then the federal QDRO rules kick in and enforce it. That’s how the QDRO for married couples was born.

Why Would a Married Couple Use a QDRO?

At first blush, it sounds odd. Why would you shuffle retirement money back and forth with your spouse if you’re not splitting up? But when you look at the financial benefits, the picture becomes clear.

Here are some of the most popular ways couples are using In-Marriage QDROs today.

1. Delaying Required Minimum Distributions (RMDs): Everyone with a tax-advantaged retirement account eventually has to take money out — whether they need it or not. These are called Required Minimum Distributions, or RMDs. For many retirees, RMDs kick in during their early 70s and can create a tax headache.

Example: John is 70, ready to retire, with $500,000 in his 401(k). His wife Maria is 63. She’s younger, still working, and not close to RMD age yet. Normally, John would have to start pulling money out and paying tax, even if they didn’t need the income. That could mean $15,000 or more in forced withdrawals (and a few thousand in taxes) every year.

With an In-Marriage QDRO, John can legally roll part of his 401(k) into Maria’s name. Suddenly, the clock for RMDs resets to her age. Instead of starting now, they don’t have to touch that money for several more years. That’s not just a tax delay. It’s more years of tax-free growth inside the account. Over time, that can mean tens of thousands of dollars in extra retirement security.

2. Planning for Medicaid and Long-Term Care: The biggest financial shock most seniors face isn’t travel or inflation — it’s long-term care. A nursing home can cost $6,000 to $10,000 a month, and Medicaid rules can force families to spend down assets before help kicks in.

Imagine: Robert, age 78, needs nursing care. He has a $4,000 monthly pension in his name. His wife, Carol, is healthy and still living at home. Normally, there’s no way to protect Robert’s pension — it counts as his income and may block him from Medicaid eligibility. But if they use an In-Marriage QDRO, that pension can legally transfer into Carol’s name. She uses it for household needs, while Robert may still qualify for benefits. Instead of draining their savings, the QDRO shifts the income to the spouse at home, letting the family stay afloat.

3. Turning a 401(k) Into Guaranteed Income: Some people love the stock market rollercoaster. Others, not so much. For the cautious type, annuities — financial products that guarantee a monthly income for life — can feel like peace of mind. But annuities are tricky. If the market is down when you retire, you might not be able to lock in the annuity you want. Timing matters.

A QDRO while married puts the control back in your hands. A couple can move money into the younger spouse’s IRA earlier, then convert to an annuity when it makes the most sense — not when the older spouse’s retirement date forces their hand. That flexibility can be the difference between “barely enough” and “comfortable for life.”

Crunching the Numbers!

Let’s go back to the RMD example with John and Maria. John’s $500,000 account would require withdrawals of around $18,000 a year. At a 28% tax rate, that’s about $5,000 in taxes. Over 5 years, that’s $25,000 in taxes they didn’t need to pay yet. By shifting the money to Maria through a QDRO, they delay those taxes and let the money grow. If that $500,000 grows just 5% a year instead of being partly drained, the difference could be more than $50,000 after five years. That’s real money!

Isn’t That Too Good to Be True?

It’s natural to wonder. The IRS doesn’t exactly hand out “get out of tax” cards. So is this even legal? Yes.

The IRS itself defines a QDRO as something that can benefit a spouse or a former spouse. The Department of Labor, which oversees ERISA, has confirmed that QDROs don’t require a divorce. Federal courts have consistently ruled that once a QDRO meets the technical checklist, plan administrators must follow it.

Who Should Be Thinking About This?

A QDRO isn’t just for the ultra-wealthy. It can help couples with a big age gap, families facing health challenges, or pre-retirees who want flexibility. That said, it’s not a one-size-fits-all solution. There are costs (court filing fees, plan administrator fees, attorney fees), and there are risks (like what happens if one spouse dies or the couple eventually divorces).

The Bigger Picture!

Here’s the real lesson: sometimes the best financial tools are hiding in plain sight. For more than 30 years, everyone assumed QDROs were strictly for divorce. But the law never said that. By looking closer, attorneys, like those at Ovando Bowen LLP, discovered a whole new strategy sitting unused.

Key Takeaways:

• A QDRO is a court order that lets retirement money be moved between spouses.

• It’s not just f

  or divorce. A QDRO uses the same law while the couple is still married.

• Benefits include delaying taxes on retirement accounts, protecting assets during long-term care, and creating guaranteed income.

• It’s fully legal under federal law, though it requires careful drafting and court approval.

• Not every couple needs one, but for the right situation, it can mean tens of thousands of dollars saved.

If you're curious how this QDRO can help you make sure to speak to a financial advisor as well as the attorneys at Ovando Bowen LLP.