Frequently Asked Questions about Qualified Domestic Relations Orders in Divorce and Legal Separation (“QDRO”)

Division or transfer of all or a part of a defined contribution or defined benefit plan is a common occurrence during divorce or legal separation. Here are some of the basic questions we are frequently asked and our answers about QDROs.

 What is a Qualified Domestic Relations Order?

A QDRO is court Order in a divorce or legal separation proceeding, which is required under the U.S. Employee Retirement Income Security Act (“ERISA”) and authorizes the administrator of a retirement plan to transfer all or a portion of an employee spouse’s retirement plan to a spouse, former spouse, child, or other dependent of the employee spouse.

Who can be an “Alternate Payee”?

 An alternate payee can be no one other than a spouse, former spouse, child, or other dependent of the employee spouse.

For what type of retirement account is a QDRO required? 

Except for a Traditional, Rollover, or Roth Individual Retirement Account (“IRA”), a QDRO is required to divide a 401(k), 403(b), 457, or any other type of defined contribution plan, a defined benefit plan, and a Federal and State civil service, police, firefighters, and union plan.

Who is the “Administrator” of the retirement plan?

The administrator is the individual or entity specifically designated as such in the plan documents. If the retirement plan documents do not designate an administrator, the employer maintaining the retirement account, or, in the case of a retirement plan maintained by more than one employer, the association, committee, joint board of trustees, or a similar group representing the parties maintaining the retirement plan usually serves as the administrator.

Why not wait to get QDRO until the employee spouse retires or the alternate payee spouse needs money?

Valuable rights of may be at risk if a divorcing couple waits to get a QDRO until the participant spouse retires or the alternate payee spouse needs money from the retirement plan. For example, the alternate payee spouse’s rights may be at risk if after the divorce or legal separation the participant spouse retires, remarries, dies, quits or is fired, withdraws funds before retirement, and/or borrows against the retirement plan.

What steps need to be taken to obtain and finalize a QDRO?

 Step 1: After a QDRO has been prepared, it is sent for pre-approval to the plan Administrator.

Step 2: After the QDRO is approved by the Administrator, it is sent back to the preparer so that it can be delivered to the court for signature by the Judge and a certified copy obtained.

Step 3: The certified copy of the QDRO is sent to the Administrator to effectuate the transfer to the alternate payee of the amount or percentage of the retirement plan specified therein.

How long does the QDRO process take?

Depending on the complexity of the QDRO and the efficiency of the Administrator, it typically takes 3 to 6 months to complete all three of the above enumerated Steps.

What about income taxes?

Unless the alternate payee spouse chooses to “rollover” the funds he or she is to receive into an IRA or a 401k account which accepts rollovers, such funds will be subject to federal and state income taxes plus, if the employee spouse has not yet reached age 59 ½, a 10% early withdrawal penalty. It should be noted, however that payments from a Defined Benefit Plan or a military or Federal civil service Plan cannot be rolled-over; that is, such funds are taxable to the alternate payee spouse when received.

Oliver Ross, JD, PhD. and Kimberlee Handy, Esq.