Dividing Retirement Plans Using a Qualified Domestic Relations Order (“QDRO”)
Attorney Robin Birnbaum
Representing numerous clients in divorce (dissolution of marriage) proceedings, I am frequently asked how employee related benefits, such as pensions, 401(K)’s and state and federal employee retirement system plans, are divided. The answer, although simple, is perhaps one of the most confusing aspects of the divorce process for many of my clients. Also, you should not attempt to file your judgment until this process has been completed, or severe consequences may occur in relation to dividing the retirement assets.
What is a QDRO? A QDRO (Qualified Domestic Relations Order) is a court order which divides community retirement plans between divorcing spouses. The order is prepared using a mathematical calculation which takes into consideration the date the plan was opened, the date of marriage, and the date of separation. There are certain provisions that every QDRO much have under federal law (ERISA), establishing the minimum standards for pension plans. These provisions include the name of each plan included in the terms of the order, the dollar amount or percentage (or the method of determining the amount or percentage) of the benefit paid to the non-employee spouse, and the number of payments or time period to which the order applies.
How do I process a QDRO? This order should be submitted to the Plan for approval, in order to ensure they will enforce it. The Plan Administrator is initially responsible for determining whether or not a domestic relations order is a properly prepared QDRO under federal law. As such, it is highly recommended that a draft of the proposed QDRO be submitted to the Plan Administrator for pre-approval before submitting this document to the court. A QDRO will not secure a non-employees benefits until the plan administrator receives and approves the QDRO.
Once it has been approved by the Plan, the order is then signed by a judge, and filed with the court. Thereafter, the executed QDRO is served on the Plan Administrator, who updates the retirement account to reflect the new division of the funds at the time of retirement.
Can I wait to have my QDRO prepared? The short answer is - no. Although many clients wish to save the cost of preparing a QDRO at the time their judgment is ready to be processed, or they encounter a difficult spouse who is obstructing the process, you should not process a judgment until all necessary QDRO's have been served and approved. If a non-employee, or non-participant spouse, delays getting the QDRO filed and served before Judgment is entered, the delay could result in a loss of benefits. For example, if the participant spouse dies before the QDRO is implemented, the non-participant spouse could lose his/hers benefits awarded under the terms of the divorce decree. If the employee spouse retires prior to entry of the QDRO, this can also cause complications for the non-employee spouse, particularly when the plan has not been 'joined'.
Retirement plans are often one of the most valuable assets to be divided in a dissolution of marriage action, and it is important that the division and implementation of the QDRO’s be performed properly, in order to protect the non-participants community interest. If you need assistance preparing or processing a QDRO in your case, or have concerns about dividing your retirement plans, make an appointment today to learn more by calling (707) 427-6777.