The landscape of marriage is shifting dramatically for America’s older adults, with a seismic trend reshaping retirement planning and personal finance: the rise of “gray divorce.”
What was once an anomaly has become a significant demographic shift. Between 1990 and 2010, divorce rates for adults over 50 more than doubled, a transformation that carries profound economic and emotional consequences.
A compelling 2022 study published in The Journals of Gerontology underscores this trend, revealing that 36% of U.S. divorces now involve individuals 50 and older. Even more striking, the only age group seeing an increasing divorce rate is those 65 and above.
For financial advisors, retirement planners, and couples themselves, this trend demands serious attention and knowledge of such things as the QDRO.
A Qualified Domestic Relations Order, or QDRO, is a legal document that allows a former spouse to receive a portion of their ex-partner’s retirement account, such as a 401(k) or pension, as part of a divorce settlement.
It enables the division of retirement assets without triggering early withdrawal penalties or immediate tax consequences, essentially splitting the retirement funds between the two parties as determined by the divorce agreement.
As part of an ongoing series, TheStreet is posing personal finance questions to leading AI models and then having a subject matter expert critique the responses. What did AI get right? What did it get wrong? And what were the material omissions?
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What is a QDRO, and how would I know if I need one?
Here is the question we recently posed to Claude, Anthropic’s artificial intelligence (AI) assistant: What’s a QDRO, and how would I know if I need one?
The AI assistant responds
A QDRO (Qualified Domestic Relations Order) is a legal document that allows retirement assets to be divided between divorcing spouses without triggering early withdrawal penalties or immediate taxes.
When you’d need a QDRO:
You typically need a QDRO if you’re getting divorced and need to split:
- 401(k) plans
- 403(b) plans
- Pension plans
- Other employer-sponsored retirement accounts
You would not need one for:
- IRAs (these use a different process called a “transfer incident to divorce”)
- Non-retirement assets like regular bank accounts or investment accounts
How to know if you need a QDRO:
You need a QDRO if your divorce settlement says you or your spouse will receive a portion of the other person’s employer-sponsored retirement plan. For example, if your spouse has a 401(k) worth $200,000 and your settlement says you get half, you’d need a QDRO to actually make that transfer happen legally.
Important points about QDROs
- The QDRO must be approved by both the court and the retirement plan administrator.
- It’s usually prepared by an attorney who specializes in them, as mistakes can be costly.
- It should be done as part of your divorce process, not years later.
- Each retirement account typically needs its own separate QDRO.
If you’re going through a divorce and there are any employer retirement plans involved, I’d recommend asking your divorce attorney whether you need a QDRO. They can review your specific situation and handle the paperwork.
A financial adviser’s critique
Rick Fingerman, managing partner of Financial Planning Solutions, offered the following critique of Claude’s (AI) answer to the question about QDROs.
I would score this a 10. Concise and accurate. If someone asked Claude, “What is a QDRO?” or “I’m getting divorced and need to give my spouse half of my 401(k) — how can I do that in the most tax-efficient way?” the answer provided would be accurate.
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However, if that person also had a large IRA, they might be able to avoid using a QDRO altogether by keeping their 401(k) intact and instead transferring a larger share of the IRA to their spouse.
In this case, Claude (or AI) doesn’t always give the most complete answer. I have played around with ChatGPT, and when I reply to its answer with more detail, it will usually say something like, “That is true. I wasn’t looking at the most recent tax law,” etc.
Got a personal finance question you want us to ask AI? Email it to Robert.Powell@thestreet.com and we’ll find a subject matter expert to critique AI’s response.
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