What is a QDRO and How Does it Work?

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A Qualified Domestic Relations Order, commonly referred to as a QDRO, is a court-order that directs a retirement plan to divide retirement accounts, typically along the terms of the divorcing parties’ agreement. If there is no agreement – or the agreement is unclear – the QDRO will work off your state’s default law to decide how to split the retirement accounts.

QDROs are a niche legal practice that very few lawyers specialize in. Ironically, many divorce lawyers are not well-versed in the implications of, and options available in, a QDRO, even though retirement accounts are typically among the most valuable assets that a divorcing couple has. A QDRO done correctly will carry out the parties’ agreement as closely as possible – while one done carelessly can cost one or both of the parties thousands of dollars.

 A QDRO can be an agreement between the parties (sometimes called a stipulation) or it can be a direct order from the court, without the signatures of the parties. Most of the time, courts prefer that parties agree and sign off on the order before it goes to a judge, though where the parties cannot agree, a judge can step in and order it without both parties’ signatures.

The QDRO is a legally binding document that outlines the division of assets. It is required by the same federal laws that stop creditors from taking money out of retirement accounts to pay off debts. Because these accounts are so secure, you need a separate QDRO to split them up as part of a divorce or child support order.

QDROs are important documents for divorcing couples, and it is important for them to understand the basics of how a QDRO works. In this blog post, we will discuss what a QDRO is, how it works, and the best practices for those navigating this process.

  1. Definition of QDRO

A Qualified Domestic Relations Order (QDRO) is a court order that establishes the rights of an alternate payee to receive all or part of the benefits payable under a retirement plan. The retirement plan can include pensions, annuities, profit-sharing plans, 401(k) plans, and IRAs. The alternate payee is typically a spouse, former spouse, or child of the retirement plan participant. The QDRO allows for payment of a portion of the participant’s benefit to the alternate payee without paying any taxes or early withdrawal penalties. The QDRO also specifies how and when the benefits will be paid, and what benefits the alternate payee is entitled to. For government plans and some private plans, a QDRO is called a DRO, DBO, COAP, RBCO, QILDRO, or other label preferred by that plan, but the point is the same: it divides the retirement account.

  1. How to Prepare a QDRO

Preparing a Qualified Domestic Relations Order (QDRO) is an important step in any divorce involving retirement benefits. To prepare a QDRO, both parties should refer to their divorce agreement, which provides some guidance on how to split the plan. Commonly, the divorce will not address all aspects of a QDRO—a common thing left out is survivor benefits on a pension to protect the alternate payee’s share. Where the divorce agreement is silent, the parties must agree on additional “gap filler” terms for the division of the retirement plan. Sometimes, the gap-fillers are provided by law, while other times they are simply one more thing to negotiate.

The terms of the QDRO include the type of division of the retirement account (a percent, a fixed dollar amount, etc.), the amount to be paid, and the timing of payments. Once an agreement is reached, a QDRO must be drafted and signed by both parties. The QDRO should list the names and addresses of everyone involved, as well as the details of how the retirement account will be split and any other important information.

Once the QDRO is written, it should be sent to the administrator of the retirement plan for pre-approval. This gives the parties and the court confidence that the order will work when it is put into action. Assuming the pre-approval goes through, the parties can sign and submit the order to the court for the judge’s signature. Finally, once the court signs off, the parties need to send a certified copy of the order to the plan administrator to carry out the split. The plan administrator will likely have extra paperwork for both parties at that time, but the legal process is over.

  1. Requirements of a Valid QDRO

A Qualified Domestic Relations Order (QDRO) is a legally binding document that outlines how a person’s retirement plan should be divided in the event of a divorce. It is necessary to ensure that any alimony or child support payments are received as intended, that tax is allocated to the right party, and that the parties are not hit with early withdrawal penalties. The QDRO also ensures that all parties’ rights to retirement benefits are properly addressed.

In order for a QDRO to be valid, it must meet certain criteria. These include: (1) the order must be in writing; (2) it must name the participant and alternate payee; (3) it must name the plan; (4) it must provide for the payment of benefits to an alternate payee (spouse, ex-spouse, or child); (5) it must not violate the plan’s rules; and (6) it must be approved by the court.

Once these conditions have been met, the QDRO can be sent to the plan administrator to be approved and put into effect. Again, before the order goes to court for a signature, you should ask the plan administrator to pre-approve the language.

  1. When a QDRO is Used

Most of the time, a QDRO is used to divide and share retirement benefits between divorcing spouses. It can also be used to get back child or spousal support that was not paid on time. The order requires the retirement plan to provide the non-employee spouse with assets from the plan, such as a lump-sum payment or regular payments of pension benefits. A QDRO can also be used to lock in the participant’s choices in a retirement plan, like giving death benefits or survivor benefits to someone else. In most cases, the QDRO must be approved by the plan and the court before it can be enforced.

  1. Benefits of Setting up a QDRO

 Setting up a QDRO can provide several benefits to individuals, including:

  • Allowing for the secure transfer of retirement benefits to an alternate payee without being subject to an early withdrawal penalty or taxing the participant for a withdrawal.
  • Protecting both parties’ retirement plans in the event of a divorce and ensuring that the retirement benefits are divided in a fair and equitable manner.
  • Eliminating the need to cash out and withdraw retirement benefits, thus avoiding unnecessary taxes and early withdrawal penalties.
  • Helping to ensure that the retirement benefits are distributed in accordance with state law.
  • Providing peace of mind to both the plan participant and the alternate payee that the retirement benefits are secure.

In conclusion, a QDRO is a powerful and important tool for making sure that a divorced couple’s retirement account is divided in a fair and efficient way. When a couple is getting a divorce, it is important that the QDRO is filled out correctly and on time so that the assets are split fairly and each person gets their fair share. Delays can mean lost retirement plan records, cashed-out or rolled-over accounts, or death and the loss of a pension entirely. Because these documents are so complicated, you should talk to an attorney to make sure that the QDRO is put together correctly.


Willie Peacock
Author: Willie Peacock

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