Perhaps one of the most obscure, misunderstood and confusing aspects of the divorce process involves QDROs. If not prepared and processed properly, a spouse who was awarded an interest in his/her ex-spouse’s retirement plan assets could lose those benefits. The folllowing are some of the more frequently asked questions concerning the QDRO process:
1. What is a QDRO?
A QDRO ( Qualified Domestic Relations Order) is a Court Order which is used to divide retirement plan assets between a divorcing couple. (A QDRO can also be used to collect child support or alimony from a plan participant’s retirement assets). It is signed by the Family Court Judge with jurisdiction over the divorce case, and filed with the Court. Next, the signed QDRO is sent to the Plan Administrator for approval. Once approved by the Plan Administrator, the assets are divided per the terms of the QDRO and a separate account is established for the non-participant spouse ( aka “alternate payee”).
2.Do I Need A QDRO Even if the Settlement Agreement or Divorce Decree Awards Me a Portion of My Ex-Spouse's Retirement PLan Assets?
YES! A QDRO is not effective to secure your awarded benefits until the plan administrator receives and approves the QDRO. If the non-participant spouse delays getting the QDRO filed and accepted by the plan administrator, then this delay could result in a loss of benefits by the non-participant spouse. For example, if the participant spouse dies, retires, quits, is terminated, takes out a loan from the plan assets, re-marries, etc. prior to the implementation of the QDRO, the non-participant souse could lose his/her benefits awarded under the terms of the Divorce Decree.
3. Can I just use the “Model” QDRO form given to me by the Plan Administrator?
QDROs are not neutral documents. "Model" QDROs that plan administrators provide are often designed to benefit the plan and the participant spouse. It is advisable to obtain the services of an attorney experienced in QDRO issues to protect your interests.
4. What Information Must a Domestic Relations Order Contain to Qualifyas a QDRO under ERISA?
Every QDRO must contain the following information:
The name and last known mailing address of the participant and each alternate payee;
The name of each plan to which the order applies;
The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee;
The number of payments or time period to which the order applies
5.What is Not Allowed in a QDRO?
There are certain provisions that a QDRO must not contain:
The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan;
The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value) ;
The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO ;
The order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse .
6. Do All QDROs Contain The Same Provisions?
No. While all QDRO must contain certain provisions (see Question #4, above), the language and content of the rest of the QDRO will depend on the issues specific to each case.
7. Who Determines Wheteher an Order is a QDRO?
The Plan Administrator of the retirement plan that provides the benefits affected by the proposed QDRO is the individual (or entity) initially responsible for determining whether a domestic relations order is a QDRO, per federal law. As plan fiduciaries, they bear the duty and responsibility with respect to determining whether a domestic relations order is a QDRO. As such, they establish guidelines and procedures to determine whether an order is a QDRO, and follow such rule when presented with a proposed QDRO. It is prudent to submit a proposed QDRO to the Plan Administrator for pre-approval prior to submitting the QDRO to the Court.
8. When should the QDRO process be initiated?
As soon as it is determined during the divorce process that retirement plan assets are to be divided, the QDRO process should commence. Plan documents should be acquired from the Plan Administrator, the QDRO should be drafted, and a the draft should be submitted to the Plan Administrator for pre-approval (it is not uncommon for the review process to take weeks).
9. Why is a properly drafted QDRO so important?
Retirement plans are often one of the most valuable marital assets in divorce cases.
QDROs are complex legal documents. A small mistake in the language used in the QDRO could cost a spouse thousands of dollars in lost benefit payments. It is vital that the QDRO be properly drafted to protect the respective rights of the parties.
The realm of QDRO law is vast. This Q&A article is intended only as a snapshot of some of the most asked questions about QDROs- it is by no means comprehensive in nature.
Intertwined in the area of QDROs and the relevant retirement plans are very important financial planning/investment issues which are beyond the scope of this article. They should not, however, be ignored by divorcing couples and their legal counsel.
The information provided in this article is for general informational purposes only and is not intended to be legal advice, and does not create an attorney/client relationship. Users should obtain professional advice from his/her own attorney before acting on any of the information contained in this article.
Donald E Rowell is an attorney licensed to practice law in the state of Colorado. He is available for consultation regarding legal matters; however, the act of sending electronic mail to him does not create an attorney-client relationship. Because of the inherent nature of e-mail, neither Don Rowell nor his Law Firm can guarantee the confidentiality of e-mail transmissions.