Should an Attorney Prepare My QDRO?

Most people never hear of a QDRO until they go through a divorce. QDRO stands for qualified domestic relations order. When a married couple goes through the divorce process, they divide their property, including bank accounts, real estate, and even debts. If either spouse has a retirement plan, a QDRO is often required and makes it easier to split retirement savings.

There are rules and restrictions surrounding QDRO distributions, and a family law attorney can help you through the process.

What Is a QDRO?

A QDRO is a decree to use a spouse’s retirement plan to pay child support, alimony, or marital property to a spouse, ex-spouse, child, or another dependent.

A QDRO may be part of the divorce agreement. In fact, it may be required to recognize one spouse’s entitlement to receive a portion of the other spouse’s retirement plan benefits. A QDRO treats the ex-spouse as an alternate payee for retirement plan participants. The benefit payment from a QDRO may be taxable unless the spouse is able to roll them over into a qualified retirement plan.

The amount of benefits available to the former spouse from a retirement account depends on a number of factors, including the :

• Amount of retirement benefits for each spouse
• Length of the marriage
• Amount of benefits accumulated during the marriage

In general, the QDRO will provide the spouse with half of the amount that was accumulated during the marriage.

Specific Restrictions of a QDRO in Divorce

There are strict rules and restrictions on QDRO benefits. The divorce court judge cannot require qualified plans to make a distribution or provide any options that are not already provided for in the retirement plan. A former spouse cannot get increased benefits or alternative benefits. The benefits and distributions are restricted under the existing retirement plan.

Many spouses have more than one retirement plan during their working lives, and each retirement plan may have its own set of rules and restrictions. Qualified retirement plans also have their own requirements for what information to include in a QDRO. The retirement plan administrator is generally responsible for making sure the benefits in the QDRO fit the plan.

According to the IRS, a QDRO must provide, at a minimum:

• The name and address of the participant and each alternate payee
• The amount or percentage of the participant’s benefit that each alternate payee will receive

Model QDRO From the Retirement Plan Administrator

The retirement plan administrator may provide a model QDRO. While the model QDRO meets the retirement plan’s requirements, it may not fully meet your needs or legal requirements. Your attorney can prepare a QDRO that meets all your needs, maximizes the benefits, and protects your rights.

A QDRO can also modify survivor benefits for a former spouse. If the QDRO awards survivor benefit rights to a former spouse, even if the participant remarries, the new spouse will not receive survivor benefits if the participant dies. This is why it’s important to have your attorney ensure the QDRO meets all the requirements and properly provides for the percentage or dollar amount you deserve.

Retirement Benefits in a Divorce

The divorce decree will generally provide for the division of property and assets between the spouses. Division of assets includes division of retirement benefits. When a spouse is not part of the contribution plan, the retirement plan managers cannot simply make the spouse a plan participant without a QDRO.

Retirement plans include pension plans, 401ks, IRA accounts, stock ownership plans, health benefit plans, and profit-sharing plans. Each type of plan may handle its benefits differently, including survivor benefits, benefits payable, plan statements, plan distribution, and plan rules. Your divorce lawyer can help you understand the benefits, restrictions, and how to maximize the tax savings during divorce proceedings.

The decision to use a QDRO can be part of the divorce decree or property settlement. You do not need a separate judgment, decree, or order to pursue a QDRO.

Family Law Attorney Advice

The rules governing QDROs and retirement benefit plans are complex and constantly changing. Although a model QDRO is often a good starting point, it does not necessarily address all the issues contemplated in the marital settlement agreement. The model QDRO sent by the retirement plan usually has sections that the recipient may have difficulty understanding.

A QDRO must contain certain information provided in the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code that a licensed attorney will be more familiar with. Retirement assets are generally significant assets in your overall financial picture. It is important for you to understand the choices you are making, and a qualified attorney can help you make choices that are in your best interest.