Part of getting divorced is deciding how to split 401(k)s, pension benefits, or other sorts of retirement plans. To do this, you usually need a Qualified Domestic Relations Order (QDRO). This article will explain what a QDRO is, help you understand whether you need a QDRO, and describe the process for getting one.
This guide relies on primary research, including federal and state laws, and federal regulations; and on the writings of practicing attorneys. It was reviewed and fact-checked by a practicing lawyer prior to publication.
What is a QDRO?
A QDRO is a court order requiring part of one person’s retirement plan to be paid to someone else.
The person who participates in the retirement plan is called the “participant” and the person receiving benefits is the “alternate payee.” For QDROs, the alternate payee must be a spouse, former spouse, child, or other dependent of the participant. Under a QDRO, the alternate payee can obtain a direct interest in the participant’s retirement plan as if they had earned the benefits themselves. Payment under a QDRO may be made in the form of child support, alimony, or marital property rights.
What Does a QDRO Cover?
Most types of retirement plans are subject to QDROs.
Private (corporate) pension and benefits plans, including 401(k), 403(b), 457, defined benefit monthly payment, TIAA/CREF, and similar plans may be divided by QDROs according to a federal law called the Employee Retirement Income Security Act, or ERISA.
Military retirement pay, federal and state civil service plans, Railroad Retirement Plans, and IRAs may also be divided by QDROs or similar orders.
When do I need a QDRO?
During a divorce, a couple’s assets are usually divided between them. However, that division does not automatically extend to retirement plans. A QDRO governs when and how retirement assets will be split.
Without a QDRO, retirement plan administrators cannot split the funds of the participant to pay the alternate payee. Also, because different retirement plans have different rules for dividing assets, a QDRO ensures that all requirements of state law, federal law, and the retirement plan are met.
What Are the Benefits of a QDRO?
Divide retirement assets cleanly
A QDRO increases the efficiency of the divorce process by streamlining the division of retirement assets and removing ambiguity around how much will be transferred from the participant to the alternate payee. If a couple gets divorced but doesn’t get a QDRO, then the alternate payee won’t have a way to compel the
QDROs provide tax benefits. Typically, there is a 10% tax penalty on any funds withdrawn early from a retirement account. However, with a QDRO there is no penalty for the transfer of funds from the participant to the alternate payee. And the alternate payee is not taxed on the funds received under the QDRO so long as those funds are put into another retirement account.
What Are the Requirements of a QDRO?
Simply put, a QDRO must comply with ERISA and the laws of the state granting the divorce.
The specific language needed in a QDRO will vary depending on whether the pension plan in question is private (i.e., obtained through a private employer), public (i.e., a government plan), or if the plan in question is subject to bankruptcy proceedings or is otherwise financially troubled.
For a QDRO to work, it must, at minimum, (a) satisfy state and federal law, (b) comport with the specific retirement plan’s rules, and (c) be acceptable to attorneys who review QDROs on behalf of retirement plans.
Under ERISA, QDROs must contain the following information:
the name and last known mailing address of the participant and each alternate payee;
the name of each plan to which the order applies;
the dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee; and
the number of payments or time period to which the order applies.
Separately, individual retirement plans, as well as the laws of the relevant jurisdiction, may have their own requirements. To that end, QDROs also commonly contain the following:
the time frame for which the QDRO applies, including the commencement date and the number of payments;
what happens in the event of the death of the participant and alternate payee; and
what happens if the retirement plan is terminated.
Under ERISA, there are also a number of things that a QDRO must not contain, which include the following:
the order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan;
the order must not require a plan to provide for increased benefits (determined on the basis of actuarial value);
the order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO; and
the order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse.
Notably, a QDRO can assign rights to retirement benefits under more than one retirement plan of the same or different employers as long as each plan and the assignment of benefit rights under each plan are clearly specified.
What Is the Process for Obtaining a QDRO?
A QDRO is usually drafted by a lawyer at the request of the alternate payee. (More on this below). There are generally seven steps involved in getting a QDRO:
Step 1: Gathering Information
Information about both parties and various documents pertaining to the divorce must be gathered before the QDRO process can formally begin. This includes financial documents and disclosures.
Step 2: Drafting the QDRO
The QDRO must be drafted and reviewed to make sure it’s accurate and complete.
Step 3: Approval by the Opposing Party
The QDRO must be approved by the opposing party or their counsel. If the divorce is contested, this might be challenging and might require the judge to make the decision.
Step 4: Approval by the Retirement Plan of the Draft QDRO
The draft QDRO must be approved by the retirement plan, which will often request changes in the language of the QDRO prior to approval. (Note that this step is omitted with some retirement plans that choose not to review draft QDROs; that said, those plans will still need to approve the QDRO in final form prior to implementation.)
Step 5: Approval by the Court
The judge presiding over the divorce proceeding must approve the QDRO and sign it.
Step 6: Obtain a Certified Copy of the QDRO
Once the original QDRO has been signed by a judge, multiple certified copies need to be obtained to be sent to the plan for final approval, acceptance and payment. A certified copy is one that bears the original signature or seal of the court clerk. You can get certified copies from the court for a small fee.
Step 7: Final Acceptance by the Plan
The retirement plan must accept and implement the QDRO. Assuming all other steps have been followed properly, especially Step 4, this usually happens soon after the plan receives the certified QDRO.
What Makes QDROs Complicated?
In short, there are a lot of reasons that QDROs are complicated. Some of these are obvious from the issues discussed above. QDROs must comply with numerous state- and retirement-plan-specific requirements. The process for obtaining a QDRO is complex. A QDRO must be properly drafted to account for various contingencies, such as the bankruptcy of a pension plan or the death of a spouse.
There are also tax consequences for a QDRO that must be taken into account. As noted above, there are tax benefits that QDROs can have for both the participant and the alternate payee. There can also be tax downsides. For example, a QDRO distribution that is paid to a child or other dependent is taxed to the plan participant.
One particularly complex aspect of QDROs is that they must account for what happens if the employer responsible for the plan goes bankrupt or is otherwise unable to maintain the plan. These requirements are detailed and technical and are not easy for non-specialists to draft and formulate.
Who Can Draft QDROs?
Technically speaking, anyone can draft a QDRO provided that they figure out what it needs to contain.
Realistically, however, only lawyers draft QDROs. As one attorney who handles QDROs has written, “Preparing a QDRO often has less to do with divorce law than understanding federal law controlling pensions and retirement, such as ERISA, and interpreting the unique plan rules that dictate each retirement plan.” For that reason, many divorce lawyers outsource the drafting of QDROs to specialized attorneys or services that exclusively work on QDROs.
Some retirement plan administrator may also have a standardized form for the QDRO to facilitate the drafting with respect to that specific plan.
What Are Some Options for People Who Don’t Have a Lawyer?
If you and your spouse do not agree how to split retirement benefits or the retirement plan doesn’t have a QDRO template you can use, then you should consider hiring a lawyer.
But if that isn’t feasible, there are numerous reputable online services that help draft and file QDROs. At eDivorce, we like QDRO Desk and QDRO Counsel. Online QDRO services will cost between $200 – $800 depending on how complicated your situation is and whether you opt for add-on services.
What if I Can’t Afford to Pay for a QDRO Service?
Many local communities have legal aid organizations that exist to help provide legal representation to those who cannot afford a lawyer. These organizations offer assistance with a variety of common legal problems, often including divorce, and may be able to provide help with related aspects of the divorce process such as obtaining a QDRO.
Where can I learn more about QDROs?
There are a variety of helpful resources about QDROs online. Some the best sources of information are websites of different agencies and departments of the federal government, which provide a host of useful information about QDROs.
The Department of Labor has produced a comprehensive resource called “The Division of Retirement Benefits Through Qualified Domestic Relations Orders” that serves as a general overview of QDROs and provides citations to specific previsions of ERISA law that govern QDROs. It also has a website answering FAQs regarding QDROs. The IRS has helpful information about the tax consequences of QDROs. And the federal Pension Benefit Guaranty Corporation explains what happens if a pension plan is “terminated,” meaning the employer responsible for the plan faces severe financial difficulty, such as bankruptcy, and is unable to maintain the plan.
The services noted above that provide help with drafting and filing QDROs are a good place to look for basic information about QDROs. Additionally, there are online services that provide users the opportunity to ask experienced divorce lawyers questions about QDROs. It’s also possible to review a list of questions asked by others and the answers they received.
Got QDRO questions?
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