A qualified domestic relations order (QDRO) is a legal document that specifies how a retirement plan or pension will be divided between divorcing spouses. A QDRO can be a complex and challenging document to draft and execute, and it requires careful attention to detail and legal expertise. In this article, we will provide an overview of some common mistakes that can occur in the QDRO process and how to avoid them.
Who is involved in the QDRO process?
The QDRO process involves several parties, including the plan participant (the spouse who owns the retirement plan or pension), the alternate payee (the spouse who will receive a portion of the plan or pension), the plan administrator (the entity that manages the plan or pension), the attorneys for both spouses, and the court that issues the divorce decree.
Drafting a properly structured QDRO
One of the most important steps in the QDRO process is drafting a properly structured QDRO that complies with the requirements of the plan or pension and the divorce decree. The QDRO should clearly identify the plan or pension, the plan participant, the alternate payee, the amount and duration of payments, the form of payment (lump sum or periodic), and any contingencies or survivor benefits. The QDRO should also specify how any fees, taxes, or penalties will be allocated between the spouses.
Document information needed from plan participant and/or divorce decree/settlement agreement for drafting purposes
To draft a QDRO, the person preparing the QDRO will need to obtain certain information from the plan participant and/or the divorce decree/settlement agreement. This information may include:
- The name, address, date of birth, and social security number of both spouses
- The name and contact information of the plan administrator
- The name of the plan or pension
- The date of marriage and date of separation or divorce
- The percentage or dollar amount of the plan or pension that will be awarded to the alternate payee
- The date when the alternate payee’s interest in the plan or pension will commence and terminate
- Whether the settlement agreement includes any cost-of-living adjustments, interest, or earnings on the alternate payee’s share
- Any other relevant information or documents requested by the plan administrator
Is legal advice necessary for proper completion of a QDRO?
Many lawyers would argue that drafting a QDRO is not a simple task that can be done without legal advice. A QDRO is a legally binding document that can have significant financial and tax implications for both spouses, so the person preparing the order needs to ensure that it is consistent with the divorce decree/settlement agreement, complies with the rules and regulations of the plan or pension, protects the rights and interests of both spouses, and avoids any potential errors.
When should you not draft your own orders? For high-value accounts or complex division scenarios (such as a premarital interest that needs accounting for or where many years have passed since the divorce), an attorney and perhaps an accountant may be needed. However, for most pension plans and 401(k) plans, an order drafted with tested language, like that used in our templates, should accomplish the division.
The bottom line is this: the plan administrator will do the actual calculations for most plans, so long as they still have records on hand, so most people who have an ordinary “50/50” split or a fixed-dollar order can use an online drafting service, such as ours, and save hundreds or thousands of dollars over what an attorney would charge.
Required terms and conditions included in a QDRO document
A QDRO document must include certain terms and conditions that are required by law or by the plan or pension. These terms and conditions may vary depending on the type and features of the plan or pension, but some common ones are:
- The name and last known mailing address of both spouses
- The name of each plan or pension affected by the QDRO
- The amount or percentage of benefits to be paid to each spouse
- The number of payments or time period over which payments will be made
- The form in which payments will be made (lump sum or periodic)
- The designation of any survivor benefits or death benefits
- The allocation of any fees, taxes, or penalties associated with the QDRO
- The recognition of any prior QDROs affecting the same plan or pension
- A statement that the QDRO does not require the plan or pension to provide any benefits that are not otherwise available under its terms
- A statement that the QDRO does not require the plan or pension to pay benefits in excess of its limits
Understanding how a QDRO fits into the overall divorce process
A QDRO is not a separate legal action from a divorce, but rather a part of it. A QDRO must be approved by both spouses and by the court that issued the divorce decree. A QDRO usually cannot be finalized until after the divorce decree is entered, though some judges will allow a QDRO to be processed during the divorce proceedings. A QDRO can be drafted before, during, or after a divorce proceeding, but it is advisable to do it as soon as possible to avoid any delays or complications.
Get Started Today
If you are going through a divorce and have a retirement plan or pension, you will likely need a QDRO. While some QDROs are complex due to valuation issues, most can be achieved through an online drafting service, such as ours. With our money-back guarantee, and the ability to preview your document before you pay, there is no risk to giving our service a try and get started today.
