Divorce can be a difficult situation for anyone, especially if you’re dealing with complex assets like retirement accounts. A qualified domestic relations order (QDRO) can ensure that you get your fair share of any retirement benefits that were acquired during your marriage. But what is a QDRO, and how can it benefit you?
Understanding How a QDRO Works
A QDRO is a legal order that divides a private retirement plan in a divorce. It allows both spouses to get a fair share of a retirement plan that was contributed to during the marriage.
The spouse who originally earned the retirement benefits is called the “participant,” and the other spouse who will receive part of the benefit is called an “alternate payee.” A QDRO generally awards part of the retirement account benefit to both the alternate payee and survivor benefits in the event that the participant dies.
A QDRO isn’t automatic in California divorces. It must be requested as part of a property settlement during a divorce. It is a federal law that these retirement plans must be divided by a QDRO issued by a state court. The divorce decree or agreement between the parties is not enough to divide a retirement plan. Spouses can make an agreement regarding finances that do not include retirement accounts.
What Types of Retirement Plans Does a QDRO Cover?
A QDRO generally covers any private retirement plans that are covered by the Employee Retirement Income Security Act (ERISA) of 1974. This includes the following:
- Private pension plans
- Thrift plans
- Profit-sharing plans
- Money purchase plans
- 401(k), 403(b), and 457 plans
- Employee stock ownership plans
- Tax-sheltered annuities
- Business/corporate defined benefit plans
Retirement plans associated with public job, such as military and government pension plans, are not typically addressed by a QDRO.
What Happens When a QDRO Is Made?
If you obtain retirement funds through a QDRO, then the court order will be signed by the judge and it will be sent directly to the pension or retirement plan administrator. It must be completed accurately for the court to sign it and for the plan administrators to carry through with the directions of the QDRO.
In some cases, when you are already at retirement age, the benefits will begin paying out immediately. In other cases, when you are not yet of retirement age, you will have to wait for retirement funds to begin paying out.
Amounts Payable to the Alternate Payee
Unless the QDRO specifies a specific amount that is payable to the alternate payee, the QDRO preparer will use a formula to tell the plan administrator how much should be paid to the alternate payee. The formula can allow for adjustments to be made in the benefit over time.
Some QDROs allow for lump sum payments to the alternate payee, and others offer payments much like a retirement benefit. Lump sum payments may be rolled over into a personal IRA or other eligible plan. Monthly installments may be made over a period of time.