Qualified Domestic Relations Order
For most adults having some form of retirement savings is a big part of our monthly budgets. This may be contributing to a 401 (k) or an IRA for example. Contributions to this kind of account qualify the employee for tax benefits either now or in the future. Those tax benefits can be lost if distributions are made from these accounts. In fact, untimely distributions will likely incur significant penalties.
Because retirement accounts often make up a large part of a couple’s community assets, splitting the account is often the only equitable way of dividing the assets at the end of a marriage. In order to avoid severe tax consequences, these accounts may be divided by court order known as a Qualified Domestic Relations Order (QDRO). A retirement plan will require a QDRO to split any kind of retirement plan, including both contribution plans, such as a 401(k) or 403(b), or a defined benefits pension program. QDROs are also used to enforce a judgement to pay child support, alimony or other marital property rights to a spouse, former spouse child or other dependent.
- Information gathering- To get started you will need to have complete information from both parties (names, address, dates of marriage and divorce etc.). You will also need to submit copies of your Divorce Decree or Separation Agreement, so we can determine how much each party is eligible to receive.
- Drafting your QDRO- Once all the information has been gathered, we can begin to draft your QDRO.
- Approval by other parties- Both sides should agree to the terms of the QDRO.
- Approval by Plan- Ideally, we will send the QDRO to the retirement plan or pension for approval. Some plans do not provide pre-approval. Pre-approval is helpful to allow to Plan to request any changes they think are necessary to qualify the order and may save significant time in implementing the order.
- Signature of QDRO by Judge of the State Divorce Court- The order must be signed by a judge as part of the divorce proceedings. The order can be signed either contemporaneously with the final dissolution documents, or after the proceedings are otherwise concluded.
- Final Acceptance by the plan- The signed order is delivered to the Plan for implementation.