If you’re divorced, do you have your QDRO in order? Wait, my what?
That’s a Qualified Domestic Relations Order, or QDRO, pronounced “cue-dro” or “qua-dro.”
A QDRO grants a person (called the “alternate payee”) a right to a portion of the benefits his or her former spouse earned from participating in an employer-sponsored retirement plan, since these are typically considered joint marital assets.
Usually, a QDRO is prepared after your divorce proceedings have been finalized, but sometimes they’re filed years after the legal split. QDROs can award benefits to the alternate payee while the participating spouse (or “participant”) is alive, along with survivor benefits if the participant is deceased. You may need to negotiate for survivor benefits, as many participants don’t agree to it because it decreases their benefit. (Note: A survivor benefit is only relevant to pensions or defined benefit plans, not 401(k)/cash plans, or defined contribution plans.) A QDRO can account for marital property division between the plan participant and the alternate payee, or for alimony or child support payments to the alternate payee. However, it’s important to note that this is a rare occurrence, usually when the non-custodial parent has failed to pay alimony or past medical expenses.
WHY DO I NEED A QDRO?
According to federal law, a retirement benefit can only be divided between former spouses who are divorcing or legally separating via a QDRO. It’s important to note that while any family law court can issue a domestic relations order, it only becomes “qualified” once the retirement plan sponsored by a private employer has accepted it. For federal government employees, these orders, once accepted by the plan, are called Court Order Acceptable for Processing (COAP). Bottom line: In many circumstances, a retirement plan will require a QDRO document that’s separate from the divorce decree. In other circumstances, other plans or IRA providers will divide an account with just a letter of instruction.
While you can get a QDRO issued months or even years after the divorce is final, we always advise our clients to obtain and file the QDRO with the retirement plan as soon as possible. If the plan participant retires after the divorce decree is final, and no QDRO has been filed, then the plan will only pay out benefits to the participant. If you get a QDRO in place after payments to the participant have started, the plan will honor the QDRO, but only for future payments. Finally, if you file a QDRO after the participant passes away, the plan can’t reject it but the order must be consistent with the plan’s terms, such as payment types and amounts.
Here’s another question we get asked: What if the plan participant remarries and then divorces? The second ex-spouse may also file his or her own QDRO with that plan. However, payments being made under an earlier QDRO won’t be affected by the issuance of a second order.
HOW DO I GET A QDRO?
You and your attorney will most likely work with a certified public accountant, who’ll draft the QDRO, once you have provided all of the information the plan requires. Since each plan requires specific language or provisions in a QDRO, often your accountant will submit a draft order for pre-approval—if the plan administrator allows that as part of the review process. Once the order has been pre-approved, the accountant will send the QDRO to you and your attorney with instructions. Your attorney will turn the draft into a formal QDRO order, submit it to the court and then send it to your ex’s retirement plan for implementation.
WHAT DOES A QDRO INCLUDE?
There are nearly three-quarters of a million retirement plans in America (those subject to the Employee Retirement Income Security Act, the federal law governing private sector pensions)
and each has its own requirements for what information you’ll need to include in a QDRO. However, there are some basic elements that all will likely ask:
- The name and mailing address of the participant and alternate payee
- The name of each plan to which the order applies
- The dollar amount or percentage of the benefit to be paid to the alternate payee
- The number of payments or time period to which the order applies
WHAT HAPPENS WHEN I GET THE QDRO?
Don’t delay: Submit your QDRO to the plan immediately. You should find out relatively quickly whether the plan has accepted the order. If the plan rejects the QDRO, you’ll learn the reasons for the rejection, including information on what you need to do to resubmit the QDRO for it to be accepted. Consult with your attorney if this occurs.
As always, we encourage you to consult with your attorney early on in the divorce process about the total picture of your marital assets, so that you can fairly divide what you’ve accumulated during your time with your ex-spouse. In any case, it’s a smart move to work with an attorney to calculate the marital benefit you’re entitled, as it’s a complex area on its own.
If you need assistance with a family law matter, our attorneys at Petrelli Previtera, LLC can provide you with the professional advice you need to make an educated decision. Schedule a consultation with one of our attorneys today.