Dividing Retirement Accounts
Qualified Domestic Relations Order (QDRO)
A Qualified Domestic Relations Order (QDRO) is a court order usually in a divorce that allows payouts from a retirement plan to a former spouse. The QDRO is necessary when dividing a retirement account pursuant to divorce proceedings due to the restrictions placed on pensions by federal law, mainly the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA). A QDRO is necessary to assure that a former spouse may receive benefits as an alternate payee, because without it, the benefits may only be paid out to the individual employee who earned the benefits.
A domestic relations order is any court order, judgment, or decree affecting alimony (spousal support or spousal maintenance); child support; or marital property rights of a child (or other dependent), former spouse or spouse made pursuant to a state's domestic relations law, also referred to as family law.
The participant is the employee who earned the benefits.
The alternate payee is the person who will receive part of the participant's pension. This person can be a spouse, ex-spouse, child or other dependent of the participant.
QDROs may be drafted at any point during the divorce process. However, the participant could die before the QDRO is drafted and approved by the court, as it often takes several weeks to compile the information necessary to complete the QDRO. Therefore, it is prudent to start drafting a QDRO early in the divorce process.
If a pension plan, including a defined benefit plan or a defined contribution plan, is going to be part of your divorce settlement, you need a QDRO. Defined benefit plans (traditional pensions with monthly payments or other specific benefits paid at retirement or other qualifying events) and defined contribution plans (individual retirement savings accounts, including 401(k) plans) need QDROs in place to allow distributions to parties other than the employees who earned the benefits.
The basic requirements of a domestic relations order to qualify as a QDRO under ERISA are names and address(es) of the participant and alternate payee(s), the name of each plan covered by the order, dollar amount or percentage of the benefit to be paid to the alternate payee(s), and the time period or number of payments contemplated by the order. All of these terms must be in writing.
No. The QDRO provision is an exception to the general ERISA anti-alienation rule forbidding the assignment of benefits to anyone other than the participant. The QDRO must be drafted and presented to the court for inclusion in any order controlling marital property division, child support, or spousal support. In addition to submitting the proposed QDRO to the court, it is advisable to submit the proposed QDRO to the plan administrator or sponsor. By submitting a draft to the plan administrator for feedback about what language the administrator will accept as valid, potential deficiencies and problems can be avoided.
The plan administrator is specifically designated by the terms of the plan. A plan may designate a plan administrator in several ways, including by name, by reference to the person in a named position, by reference to a procedure by which an administrator is designated, or by reference to the person with the specific responsibilities of a plan administrator. The specific title "plan administrator" does not need to be used to effectuate designation.
A plan sponsor, usually an employer or employee organization, becomes the plan administrator when no administrator is named in the plan instrument. If the employer is a corporation, the corporation is the plan administrator. However, the corporation's board of directors may authorize an individual to act as the plan administrator. If the corporation's board of directors does not designate a plan administrator, any officer authorized to act on behalf of the corporation in regard to contracts of an equivalent value of the plan assets will be presumed to have authority to act as the plan administrator.
Yes. An experienced divorce lawyer will be able to explain the need for a QDRO and the steps necessary to see that a QDRO is in place if necessary and that your interests are protected.