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Qualified Domestic Relations Orders (QDRO)

A Qualified Domestic Relations Order (“QDRO”) is a type of order that is used primarily to divide retirement assets that are part of a marital estate.  If you or your spouse contributed to a retirement account during the marriage, the retirement asset will be a part of the marital estate and will be subject to equitable distribution.  As explained on this site, equitable distribution is the name of the process that the court uses to divide assets between the parties.

When the parties have a retirement asset that needs to be divided, such as a 401k account or a pension, a QDRO needs to be prepared.  The QDRO includes detailed information regarding the spouse in whose name the account is titled (often referred to as the “participant”), as well as the spouse, who is commonly referred to as the “alternate payee.”  The Employee Retirement Income Security Act or ERISA, prohibits assignment provisions that prevent the distribution of retirement interests.1 However, the Retirement Equity Act carved out an exception to these prohibitions and permitted the assignment of certain rights to retirement interests in matrimonial actions.  A QDRO must be used in order to take advantage of this exception.  According to the Retirement Equity Act, a QDRO is defined as an order creating the right of an alternate payee to receive a portion of the benefits, and relate to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent or participant.

Due to the technical nature of QDRO’s, an actuary is often consulted or retained to complete the necessary calculations.  Calculations for a QDRO can be difficult if a spouse contributed to the retirement account prior to the marriage.  According to relevant case law, a spouse’s contributions made before the marriage should be immune from equitable distribution.  While the date of marriage is often used as the starting point to value the account for equitable distribution purposes, the filing of a Complaint for Divorce is often used as the end of the alternate payee’s equitable interest in the account.  Therefore, the “marital portion” of a retirement account begins at the date of marriage and normally ends at the filing of the date of the Complaint or another date that is mutually agreed upon by the parties.  It is often left to an actuary to determine how much money was contributed to the account as of the date of marriage and determine how much money was contributed to the account before the Complaint for Divorce was filed.

When the QDRO is finalized it is often first sent to the plan administrator of the account (e.g., Fidelity, Merrill Lynch, etc.) to preapprove the QDRO.  When the QDRO is preapproved, it is sent to the court for filing.  Finally, when the QDRO is filed with the court, it is sent back to the plan administrator so that the alternate payee’s share of the account can be separated from the participant’s share.

When the alternate payee’s share of the account is separated from the participant’s share, it is completely separated from the original account.  Therefore, the participant cannot borrow against the alternate payee’s share or affect it in anyway.

Whether the alternate payee can receive her/his share of the account immediately depends upon the type of account and the restrictions placed upon the account by the plan administrator.  An alternate payee may have to wait until the participant retires and starts to receive funds from the account before she/he receives payments from the account. A properly drafted QDRO should state that the alternate payee is entitled to receive benefits in any available option under the plan, including a lump sum distribution, if permitted.

Lastly, it is critical that you complete any necessary QDRO’s as soon as a settlement has been reached in your matter. If the QDRO has not been filed with the plan administrator, the plan administrator will not be aware of the alternate payee’s portion of the account and, even if aware of the parties’ agreement, may not honor the agreement without a formal QDRO.

1 While they are divisible, federal government and military retirement plans are not subject to ERISA.  These retirement plans are subject to very complex and specific rules.  You should not attempt to divide these plans without expert advice.