Qualified Domestic Relations Order (QDRO)
A qualified domestic relations order, or a QDRO, is a court-order awarding a former spouse a portion of the other spouse's retirement or pension plan benefits. A QDRO is usually referenced within the divorce agreement, and the divorce decree will outline the portion of the plan the former spouse is entitled to ahead of time.
Getting a divorce involves resolving a number of legal issues with the division of property being one of them. A QDRO differs from dividing property like a house, car, or cash because it addresses the future property interest, which exists only in the event of a divorce being final. This means it cannot be distributed at the time of the divorce, so figuring out how to divide it now deals with the issue head on and may protect you from a legal argument about these assets down the road.
Although dealing with retirement and pension benefits may seem intimidating, a knowledgeable family law attorney can help you create a QDRO during the divorce process.
A QDRO is utilized for retirement or pension plans that are covered by the Employee Retirement Income Security Act (ERISA). It is important that you find an experienced divorce attorney who understands how to address the retirement plan appropriately and who can determine if a QDRO is necessary.
Not all retirement accounts will require a QDRO to divide them. For example, IRAs (individual retirement accounts) do not fall under ERISA, so they do not require a QDRO and may be distributed with the rest of the assets in a divorce settlement.
QDROs offer a number of benefits that may protect you against a number of legal issues that may pop up in the future.
QDROs comply with the existing retirement plans rules regarding future payments to former spouses. The plan administrator may reject a “domestic relations order" initially if it does not comply with your plan's rules, so working through any issues and having the plan be “qualified" may prevent any future legal disputes over the document.
Another benefit of a QDRO is it may save you from incurring penalties from early withdrawals or tax implications. This document allows you to withdraw early from a 401(k) or other retirement plans without having to pay a penalty fee to the IRS.
QDRO's can recognize not only the former spouse, but the children or other dependents as well. This document allows you to determine the percentages or portions as well as the when they are to be distributed to the appropriate parties ahead of time, preventing future issues.
Additionally, QDROs protect you or your former spouse in the event of death. If the individual participating in the retirement program dies after the divorce and there is no QDRO, the other may not be able to receive any part of the benefit from the plan.