A QDRO is a court order that divides a retirement account. In most cases, we prefer to negotiate a reduced cash value in exchange for a pre-tax retirement account. However, if the retirement is managed by an employer and you want to divide, a court order is required to divide it.
Why
The Employee Retirement Income Security Act of 1974 (ERISA) is a set of laws that makes sure when an employer promises a benefit to an employee (like retirement benefits) the company cannot take it back or give it to someone else. In other words, when you promise to pay the employee with a retirement package, the company must stay true to its promise and give the benefit to the employee and no one else. An exception to ERISA is if a court order authorizes the employer to divert these benefits to someone else.
When
A QDRO is only necessary when (a) the retirement account is operated by an employer, such as with a 401k, rather than an IRA (b) you need to divide the account rather than negotiate a cash value for it. In most cases, we try to negotiate a cash value for the retirement account, to avoid a QDRO.
A 401k contains pre-tax money that is subject to limitations and taxes if it is withdrawn too early. It's not as good as cash for the same amount. In an effort to avoid the delay and complexity of a QDRO, often the parties will value the 401k at a 20-30% discount of the account value and balance the property and debt in other ways.