What is a QDRO?Retirement accounts are individual in nature, and there is only one name listed on them. This is why during a divorce, many spouses mistakenly believe their IRAs, 401Ks, and other types of retirement accounts are not part of the marital estate. In actuality, they are considered marital property, and they are included in the division of property. Since accounts like these have heavy restrictions on how they are set up and used, a special financial vehicle is needed to divide retirement assets in-keeping with the law. This vehicle is known as a QDRO. What is a QDRO? A QDRO (Qualified Domestic Relations Order) is a special court order granting a person the rights to a portion of the retirement benefits of their former spouse which were earned through participation in an employer-sponsored retirement plan. A QDRO is generally prepared during a divorce proceeding but can also be filed after the divorce. Within a QDRO, the “participant” is the person who earned the retirement benefit, and the “alternate payee” is the person designated to receive a portion of those benefits. A QDRO can provide benefits to the alternate payee while the participant is still alive and can award survivor benefits after the participant dies. A domestic relations order is not necessarily the same thing as a QDRO. Any family law court can issue domestic relations orders, but these only become “qualified” once they are accepted by the retirement plan. QDROs refer to plans issued by private companies and non-profits. If the employer was a government entity, a different type of order might be required. The first thing that you should know about obtaining a QDRO is that working with a lawyer is strongly recommended; you should not fill out QDRO forms yourself as there is significant room for error, which could impede your right to benefits. There are also different types of retirement and pension plans, and the specific information that each requires may vary. For example, if you are seeking a Qualified Domestic Relations Orders in relation to benefits via the Florida Retirement System (FRS) Pension Plan, you will need to contact the division and request the appropriate QDRO forms. At the time your request is made, you must provide the member’s (your ex-spouse) name and Social Security number, the date of your divorce, and the date of your marriage. Next, forms must be completed in full and sent back to the division along with a copy of the final judgment of dissolution of marriage and your settlement agreement. The division will review the forms. If approved, you will receive notice that the QDRO is conditionally approved. The next step is filing the QDRO with the court. Note that when you file your QDRO, specific information must be included. At a minimum, the order should state that it applies to the plan participant and you (the alternate payee), include the name and address of both parties, specify the benefit that is to be paid to you, specify the manner of payment and when payments should commence, and contain a court-certified document. What Happens If I Don’t Have a QDRO? You may assume that because your divorce settlement and final judgment specify that you are entitled to a specific amount of your spouse’s retirement benefits, you will be paid this amount at the time that your spouse retires–or perhaps even immediately–without any issue. However, this is simply not the case. In fact, if your (ex-) spouse decides to retire before you have submitted the paperwork for a QDRO with the appropriate private or public entity and have had the QDRO approved and filed with the court, then the plan will pay all of the benefits to your ex. The divorce judge who presides over your case is not responsible for contacting the private or public entity where benefits are held and instructing it to distribute benefits in a specific manner. This is your responsibility. Why Do I Need a QDRO? According to Federal law, retirement benefits can only be divided between former spouses if a QDRO has been issued. This means that the language in your divorce decree, even if it clearly states that retirement benefits will be split, may not be enough. While this can sometimes be used as a QDRO, a qualified plan is under no obligation to accept this document before disbursing funds to a former spouse. Technically, you can get a QDRO after a divorce is finalized, but it is better to obtain this document and file it as soon as possible when getting a divorce. If your spouse, who is the plan participant, decides to retire after the divorce is final and there is no QDRO in place, the plan will begin paying out the full benefit only to them. If a QDRO is later filed, it will only apply to future payments. A former spouse, who is the plan participant, could also pass away before a QDRO is put in place. If this happens, the retirement plan will still need to honor a QDRO, but it does not need to allow any changes to payment types or amounts that are not permitted by the plan. Finally, a former spouse (the plan participant) could remarry and divorce again. If the second spouse files a QDRO and you have not, this could also impact your benefits. How Do I Obtain a QDRO? QDROs are complex legal filings that generally require the assistance of a qualified professional. There are close to 700,000 private retirement plans in the U.S., and each has its own requirements and rules for filing a QDRO. In general, every QDRO must include four key elements:
- The name, current address, and social security number of the plan participant and the alternate payee;
- The exact name of the plan to which the QDRO applies;
- The percentage or dollar amount of the payments to be made to the alternate payee;
- The time period for the order or number of payments included.