Retirement assets and qualified domestic relations order in divorce
One major component of state divorce proceedings is the division of marital property between spouses, and it is the subject of most divorce-related litigation. In addition, when it comes to retirement plans, the legal issues become slightly more complex, given that federal law governs particular retirement plans under the Employee Retirement Income Security Act.
Under ERISA, if a participant in certain types of retirement plans wants to assign the right to receive those benefits to another individual, a state authority must issue a qualified domestic relations order.
Therefore, it is important for divorcing spouses to keep in mind that a simple separation agreement or divorce decree when it comes to the division of many retirement assets will not suffice, but rather a qualified domestic relations order is required.
What is a QDRO?
A QDRO is an order or decree that divides specific retirement assets during a divorce issued by any state agency, authority or instrumentality with the power to issue judgments, decrees, or orders, or to approve property settlement agreements, pursuant to state domestic relations law.
A QDRO is not necessary to partition deferred annuities, Individual Retirement Accounts (IRAs), or government retirement plans, such as military, federal or state pension plans. Usually, division of assets in these types of plans does require a court order, but not a QDRO.
A QDRO is necessary to distribute the following retirement plans:
● employee stock ownership plans
● 401(k), 403(b), and 457 plans
● business/corporate defined benefit or pension plans
● profit-sharing plans
● tax-sheltered annuities
● money purchase plans
● thrift plans
ERISA requires that the QDRO contain the name and most recent mailing address of the plan participant as well as each alternate payee. The QDRO must also contain the name of each plan to which the order applies, the dollar amount or percentage of the benefit that is to be paid to an alternate payee, and the amount of payments or period of time to which the order is applicable.
Additionally, there are several prohibitions that must be considered by the state court or agency issuing the QDRO. Alternate payees are limited to spouses, former spouses, children and other dependents.
The QDRO must not provide a benefit to an alternate payee under the plan if that benefit does not already exist under the plan, and the amount provided for under the plan cannot be increased. Furthermore, the QDRO must not conflict with another state order previously determined to be a QDRO that assigned benefits to a different alternate payee.
Finally, the QDRO may not assign 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 new spouse.
How are QDROs used in a divorce proceeding?
As mentioned above, the key requirement for a QDRO is that it be issued by a state court or agency. Thus, in the context of divorce proceedings, a QDRO will usually come in the form of a court order, or a court order approving a pre-existing distribution agreement that divides the marital assets.
Keep in mind that the QDRO is distinct from a divorce decree and must be issued separately as a specific direction to the retirement plan administrator regarding how the plan must be divided between spouses. Obtaining a QDRO can be a complicated process, and it is advisable to seek out the advice of an attorney experienced not only in family law, but the drafting of and process of approval for QDROs.