QDRO as “alimony”

Submitted by Robert Vashko on Tue, 2021-06-29 17:37

I know the general rule is that, in a QDRO situation, the amount distributed to the non-participant spouse is their tax responsibility, as if they were a participant in the plan themselves with their own separate account.

But with the Tax Cuts & Jobs Act’s changes to the taxation and deductability of alimony payments, could a QDRO be deemed as a form of “lump-sum alimony” under the divorce settlement agreement, and thus taxable to the participant spouse?

My thought is it depends on the language of the settlement agreement – is the QDRO characterized as “alimony” vs. characterized as a “property settlement/division of assets”



Submitted by Alan - IRA critic on Tue, 2021-06-29 19:28

I have never heard of a QDRO applying to an employer plan or a transfer of an IRA incident to divorce being taxed to other than the alternate payee (receiving spouse), and the alternate payee receiving the 1099R.  That said, in some states a QDRO might be applied to certain assets other than tax deferred retirement plans. 

Submitted by Robert Vashko on Tue, 2021-06-29 21:15

Thanks, Alan.  The IRS defines a QDRO, in part, as something that can require a retirement plan to “pay alimony” to a spouse or former spouse.  I guess the question is: did TC&JA intend for QDROs to be included as “alimony” if the QDRO is providing “support” to the ex-spouse?  One could argue that that was not the intention, because the lump-sum taxation of the QDRO amount to the participant spouse could be unduly burdensome, if not financially crippling, not to mention a recordkeeping mess.  If that’s the angle they were really going for, you’d think they would have spelled it out a little more clearly in the legislation and provided the participant spouse some form of relief, like a 10-year window to pay the tax due on the QDRO amount. But still, if a QDRO is deemed “alimony” and TC&JA says alimony is not deductible by the participant spouse…..  Seems like it might be a “letter of the law” vs. “spirit of the law” kind of thing.

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