What Is A QDRO and Why You Should Care
A Qualified Domestic Relations Order, or QDRO for short, is a court order that gives one spouse (the “alternate payee”) the right to receive a portion of the other spouse’s (the “participant”) retirement plan. These plans are usually used for pensions, IRAs, or 401ks. Most frequently a QDRO is needed after a divorce when a spouse receives a portion of their ex’s retirement plan as part of the equitable distribution of the assets. Although, occasionally a QDRO can be used to collect child support payments as well.
A few common misconceptions are that a Divorce Order includes a QDRO or that a QDRO is not needed because distributions from a retirement plan happen automatically. However, that is not the case. The QDRO is actually a separate court order that is created and signed after the Divorce Order and has to be approved by the plan administrator of the retirement account being divided. Once the QDRO is approved by the plan administrator, a family court judge signs the QDRO and the QDRO is filed with the family court clerk. Finally, once the QDRO is signed and filed it is sent back to the plan administrator and plan administrator can begin distributing funds directly to the alternate payee. This process can take months to complete.
It is not unusual for a separate attorney from the attorneys representing the parties in the divorce to draft the QDRO and communicate with the plan administrators. There are many pitfalls when it comes to drafting QDROs as they need to conform with Federal Law as well as State Law. QDROs can become even more complicated if a spouse is an active or retired servicemember and the retirement plan is a military retirement plan.
If you received a portion of your spouse’s retirement plan in a divorce you need a QDRO to ensure that you actually receive the money from the retirement plan. Without a QDRO the retirement plan will not transfer you any funds or make any monthly payments directly to you. Some divorce order include provisions that require a “participant” spouse to make payments directly to the “alternate payee” spouse until the QDRO is approved, however, that is not always the case. Indeed, even if the court order requires a spouse to make direct payments until the QDRO is approved it is not unusual for the “participant” to fail to make payments. Additionally, preparing a QDRO requires personal information from the participant and alternate payee. It can be difficult to get the participant to cooperate and provide the needed information once the divorce is finalized. These are just a few of the reasons why it is important to begin the QDRO process early in anticipation of the final divorce.
If you are in the process of getting divorced and need a QDRO don’t hesitate to reach out to an experienced attorney who handles QDROs early.