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WHAT ABOUT QDROs ?
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A Qualified Domestic Relations Order, or QDRO, is a court order necessary to divide retirement assets from a divorce or dissolution decree.
After the decree, the judge orders the retirement plan administrator to divide the account or benefit held by the employee spouse into two accounts. The second account is for the other spouse's half of the marital portion of the retirement accounts. Funds can be rolled out of the employees account into the spouse's own retirement plan or account, or even into a new IRA account opened just for this purpose. Some plans allow a sub-account within the same plan to be created for the spouse.
For example, say the husband is an employee of Sander Company. He is a Participant in the Sander Company 401(k) and in the Sander Company Pension Plan. If the decree awards to the wife, one-half of the 401(k) and one-half of the pension rights, she will need to attain the status of Alternate Payee. The only way this will happen is by the court entering an order, a QDRO, supplemental to the decree, directing the plan administrator to divide the account or plan to give the wife sole ownership of half the retirement from the marriage years.
Employer-sponsored plans such as 401(k) and 403(b) are defined contribution plans because the accounts carry a dollar balance which is defined by the contributions made by the employer and by the employee, plus or minus investment gains or losses. Most such plans will require a QDRO. Individual Retirement Accounts are often divided just by filling out forms for a rollover to a spouse's receiving account, without a QDRO. Public Employer-sponsored plans such as State or Federal retirement plans and military retirement plans, are similarly divided by court order but use different formats, not technically QDROs.
A pension plan is a defined benefit plan as it does not carry a dollar balance and will not be activated until the Participant actually retires or leaves the company, sometimes decades later. The benefit, often a lifetime annuity, is defined by the monthly amount the employee will receive at retirement age. The former spouse can usually begin receiving benefits at the participant's earliest available retirement date, even if the participant continues to work. Nearly every defined benefit plan requires a QDRO to establish these future rights in the Alternate Payee.
Did you know?
Unlike the court papers involved in the divorce itself, the QDRO is not a matter of boilerplate format.
Lawyers: You understand that a Decree awarding retirement assets is not effective on its own to actually divide retirement plan accounts. After you worked to settle or try the case, the relief in completion is tempered when QDROs are necessary. Finding someone to prepare the QDRO makes sense for your practice.
First, the lawyer can refer the work to someone willing and able to prepare the QDRO -- importantly, someone who specializes in them. This allows the lawyer to move on to the next matter and avoids a complex project. If the lawyer takes on the QDRO project grudgingly or half-heartedly; or if she means well but is simply unsure how to proceed, the result is delay and stress for both attorney and client.
Second, with a new professional accountant or attorney employed to do the QDRO, there is a energy and motivation to get the matter complete. In a protracted case, the divorce lawyer and the client may be weary of working after the divorce ordeal. In a simple uncontested case, the lawyer may wish to handle only the dissolution through decree with the QDRO to be outside the scope of representation.
David Clayton Carrad, author of The Complete QDRO Handbook (copyright 2000 American Bar Association Family Law Section) says, "many lawyers in private practice have come to regard QDROs as a nagging headache that lingers on long after a case should have been closed, and [as] a constant source of friction and frustration about uncertainty, delay, and expense for their clients."
People handling their cases without lawyers find that the need for professional help with a QDRO is essential.
Contact our office today about how you can obtain prompt and cost-effective preparation of QDROs and related documents.
Professional Services include:
Review the retirement plan's rules, benefits and procedures
Draft the QDRO document
Obtain approval and changes from the plan administrator and by the opposing spouse or lawyer
Present the QDRO to the judge and clerk's office for entry as a court order
Send it to the plan for the actual division into separate accounts for each former husband and wife.
