Should QDROs be Included in the Divorce Decree Before the Judge Finalizes the Divorce?

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On average, I probably receive a phone call at least once per week from a distressed divorcee who has relied upon bad advice about the QDRO process. Some will tell me that their attorney told them they did not need to get a QDRO done until the other party retired. While others will tell me that they never knew what a QDRO was, and that they were caught by surprise when they tried to retire.

I’m not quite sure why this practice is so commonplace. Most divorce lawyers will, at best, write right into the settlement agreement that the QDRO should be done by the parties at some point in the future. They may tell their clients that a QDRO has to be done, and they may give them names, but even that is a rarity. If you step back and think about it, this is actually kind of mind-blowing because retirement assets are typically one of the most valuable and complex assets that the parties have to divide. 

Can you imagine a heart surgeon leaving one of the valves clogged and telling the patient that they should really have a nurse practitioner handle that someday soon? And if you really want to “win” that divorce case for your client, there’s no better vehicle than “yeah, you lost the car and the house, but you have a multi-million dollar pension and 401(k) left intact because he didn’t know any better.”

To answer the question of whether your QDRO should be included in your divorce decree, the answer will vary by state. But, as a general rule, your QDRO should be done as soon as possible once the property issues are settled — even before the divorce judgment or decree is issued, if possible. At a minimum, the order should be prepared, and the parties should sign it, so that it is ready to file once the decree or judgment is issued. But many judges in many states will even take the QDRO alongside the judgment so that it is all filed at once, which is a more neat solution to resolving the issue than leaving it for the parties to fight over years later.

  1. The importance of including Qualified Domestic Relations Orders (QDROs) in the divorce decree

There are many dangers in waiting to do a QDRO: lost records, rolled over or cashed out accounts, or the death of a party are three of the most common. But even if tragedy doesn’t strike, that doesn’t mean that the parties should wait. The QDRO secures each party’s rights in the retirement accounts immediately so there is nothing to fight about. Waiting means the parties, who have finally settled their property issues by agreement or court order, will have to engage with each other once again down the road, to negotiate and argue about a QDRO. Rather than do that, it makes way more sense to prepare the QDRO while the divorce is in progress so that while they are signing the settlement and judgment papers, they can sign one more piece of paper and get this out of the way more efficiently, rather than risk tragedy, rollovers, or simple aggravation of having to deal with one’s ex-spouse.

  1. The benefits of a QDRO

A Qualified Domestic Relations Order (QDRO) is an important document to include in your divorce proceedings. It ensures that any retirement benefits accumulated during the marriage are divided in a fair and equitable manner. A QDRO outlines how both parties will receive their share of the benefits, such as pension, profit-sharing, 401(k), and other retirement accounts. Including a QDRO in your divorce decree can help avoid costly disputes down the line. It also ensures that both parties receive the funds they are entitled to, allowing them to achieve financial security in their post-divorce lives.

  1. The proper steps for including a QDRO in the divorce decree

To ensure that the QDRO is properly included in the divorce decree, the couple must first create the QDRO document. This document should be prepared by a qualified legal professional and should include the details of the division of marital property. Once the QDRO is prepared, it should be submitted to the retirement plan for approval of the language before it is presented to the court. This way everyone, including the judge, can be assured that once this order is signed, it will be effective. Once the plan has approved the language of your draft, the parties should sign and submit this alongside their decree or judgment to the court for signature. Again, by submitting at this time rather than waiting, it avoids potential major tragedies like drained accounts or deceased pensioners, and saves the parties from having to negotiate and argue about this issue years later.

  1. Potential problems that could arise from not including a QDRO in the divorce decree

Not including a Qualified Domestic Relations Order (QDRO) in the divorce decree can pose several risks to both parties. First, the division of marital assets may not be legally enforceable without a QDRO. Furthermore, if the other spouse dies before the QDRO is entered, the surviving spouse may be unable to access the funds. 

In most cases though, the biggest problems that arise from waiting are additional legal fees, accounting fees, or the simple anguish of dealing with your ex-spouse years after you have moved on. However, the more time passes, the more likely it is that records are lost, plus the risk of your ex-spouse passing away increases.

  1. Necessary precautions for both parties when finalizing the divorce decree with or without a QDRO

When finalizing the divorce decree with or without a QDRO, it is important for both parties to take the necessary precautions to ensure their financial security. One precaution to consider is to make sure the divorce agreement includes specific instructions for the division of the property and the payment of benefits. At a minimum, this will give the QDRO preparer guidance when you do get to the QDRO and minimize the chances of disputes or further litigation.

But, as we’ve stated a few times, you shouldn’t wait. Draft the QDRO while the divorce judgment is being worked out. Once it is drafted, both parties should review the language of the QDRO before signing to ensure that all terms have been properly included and that it accurately reflects the intent of both parties. Both parties should also consult with legal counsel to ensure that the QDRO is properly drafted. Finally, it is important for both parties to review their financial plan and talk to their financial institute about whether they have a proper account ready for any incoming funds from the QDRO. For example, if 401(k) is often rolled over into an IRA account after a QDRO. The IRA account needs to be open and able to accept the funds. When in doubt, talk to your banker about the QDRO and get their advice on the right type of account to open.

To recap, it is both a bit bewildering and maddening that so many people wait to do their QDRO until years after their divorce. It is even more so frustrating that so many of them tell me that they did so on the advice of their attorney or that their attorney never advised them of the need for a QDRO in the first place.

It should be common practice for the QDRO to be drafted as soon as the parties have agreed on the broad strokes of how property should be divided. For example, if they have agreed that the retirement accounts should be split with 50% to each, a QDRO attorney should be retained to draft that 50% order and the parties should sign alongside their settlement agreement or judgment paperwork so that everything can be submitted to the court at the same time. This will ensure that no tragedies or paperwork losses inhibit the ability to get this QDRO done, plus everyone is already “at the table” negotiating the terms of the divorce – why not get the retirement portion in writing while everyone is in a signing mood?

Whether your divorce is in progress, or it was 15 years ago, if you have a QDRO question, we encourage you to reach out to us. You can schedule a free consultation at the top of this page. We would be happy to spend 15 minutes chatting with you about your QDRO issue and provide our input on your best route forward.

Willie Peacock
Author: Willie Peacock

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