Qualified Domestic Relations Order
Provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by the Retirement Equity Act and other subsequent legislation, state that benefits paid under a covered retirement plan may not be assigned or alienated to a person other than the plan participant (employee) unless the assignment or alienation is created under what is called la qualified domestic relations order (”QDRO”).
A QDRO is a judgment, order or decree made under the state’s domestic relations law that relates to the provisions of child support, spousal support or marital property rights to an “alternate payee” (the non-employee spouse).
For many individuals who represent themselves, they almost always forget about a QDRO when dividing the retirement accounts, e.g. 401(k) or pension.
Preparation of a QDRO is a complex thing. Preparation includes “joining” the retirement plan as a third party to the divorce. Further, all plans require that specific language be included in the QDRO. Further, the proposed QDRO needs approval by the plan administrator before it is presented to the court for final approval.What Is the Importance of a QDRO?
First, without a QDRO, there is no possibility for the “alternate payee” (non-employee spouse) to receive his or her share of the retirement account at the time the employee is eligible for distribution.
Let me illustrate: John and Irene married when they were both 21 years old. At age 23, Mary was hired as a legal secretary at a major downtown law firm. Mary worked for the company for 25 years. At age 58, she quit her job and thereafter filed for divorce. At time of quitting her job, the balance in her retirement account was $450,000. It has grown very little in value since filing for divorce. The entire 401(k) is community property. John is entitled to 50% of the 401(k).
If there is no QDRO in place at the time distributions are made, the Plan Administrator will send 100% of the retirement payments solely to Mary. The only way the Plan Administrator would have been authorized to pay John 50% of the retirement distributions was if a QDRO was on file with the Plan Administrator.
QDROs are highly-technical orders. Dividing retirement accounts are more complex than dividing other types of community-estate assets. Accordingly, it is recommended that anyone needing to divide retirement accounts speak to a licensed attorney.How Can Ms. Garrett Help?
- Ms. Garrett can assist an individual with assessing whether or not the community estate has any legal interests in retirement accounts
- Assist her clients with negotiating alternative to preparation of a QDRO
- Coaching an individual regarding preparing the necessary “joinder” paperwork to “join” the retirement plan.
- Provide referrals to QDRO specialists in the event a QDRO is required.