QDRO Requirements 16

A retirement account is often the largest marital asset (other than a home) in a divorce proceeding. 401(k) accounts and pension funds require the entry of  a “qualified domestic relation order”, or QDRO, to divide the asset between spouses or to award the retirement savings to the non-account-holding spouse. The QDRO must contain very specific information and must meet certain other legal requirements in order for it to be valid and actionable.

The legal ins-and-outs of drafting a valid QDRO can be tedious and complicated, which is why some divorce attorneys outsource the handling of QDROs to QDRO specialists. Other attorneys prefer to draft and submit QDROs on their own. Either option, of course, is fine, assuming that all the legal QDRO requirements are met. Retirement plan administrators are not allowed or required to follow the terms of any court order purporting to assign retirement benefits unless it meets the requirements of a QDRO.

What are the requirements for an actionable and enforceable QDRO?

First, there must be an actual court order. In fact, it must be a domestic relations order – a judgment, decree, or order (including the approval of a property settlement) that is made pursuant to state domestic relations law. A signed property settlement agreement without court approval is not enough.

There is requirement that a QDRO be issued as a separate judgment, decree, or order. A QDRO may be included as part of a divorce decree or court-approved property settlement, or issued as a separate order, without affecting its qualified status.

The domestic relations order can be a QDRO only if it creates or recognizes the existence of an alternate payee’s right to receive, or assigns to an alternate payee the right to receive, all or a part of a participant’s retirement benefits. For purposes of the QDRO provisions, an alternate payee cannot be anyone other than a spouse, former spouse, child, or other dependent of a participant. (Participant is the employee-spouse who saved the retirement funds; alternate payee is generally the spouse of the participant.)

A QDRO can assign rights to retirement benefits under more than one retirement plan of the same or different employers as long as each plan and the assignment of benefit rights under each plan are clearly specified.

QDROs must contain the following information:

  • The name and last known mailing address of the participant and each alternate payee
  • The name of each plan to which the order applies
  • The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee (This calculation can be difficult, especially in the case of a traditional pension fund in which the current value of future payments will have to calculated by an actuary or accountant.)
  • The number of payments or time period to which the order applies

There are certain provisions that a QDRO must not contain:

  • The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan
  • The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value)
  • The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO
  • The order must not require a plan to pay 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 subsequent spouse

Before the judge signs the QDRO, the plan administrator will need to approve the language of the Order to ensure that it meets all of the plan’s requirements (in addition to the federal legal requirements).

If there are no problems with the QDRO and all of the legal and plan requirements are met, the receiving spouse (alternate payee) will actually end up with his or her own separate account. If the participant spouse has a traditional pension, the plan administrator will establish a separate pension benefit for the receiving spouse. If the participant spouse has his or her retirement savings in a 401(k) plan, a portion of the plan funds will be rolled over into the receiving spouse’s IRA, with no tax and no penalty.

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