What is a “QDRO”?

In the United States alone, there are over 100,000 different retirement and/or pension plans. If you were awarded any portion of a former spouse’s retirement account as part of a divorce, their employer will require some sort of Order to divide the retirement account. This Order is called a “QDRO,” which stands for Qualified Domestic Relations Order.

To be recognized as a QDRO, an order must be a ‘domestic relations order”. A domestic relations Order is a judgment, decree, or order made pursuant to state domestic relations laws and relates to the provision of child support, alimony payments, or marital property rights for the benefit of a spouse, former spouse, child, or other dependent of a participant. The form of your QDRO will depend on the plan itself as there are distinctions between what is a “qualified” and a “non-qualified” plan. In its simplest terms, “qualified” refers to employer-sponsored retirement plans, such 401(k) or pension plans. “Non-qualified” generally refers to retirement plans set up and administered by the government, military or churches. When a plan is “non-qualified” it can still be divided, but it requires a different form of Order (such as an Order Diving Retirement Benefits or an Order Dividing Military Retired Pay). Other types of retirement accounts, such as IRAs or Roth IRAs, do not require QDROs but do require specialized plan-specific paperwork to be filled out to effectuate any transfers.

For one-time transfers from one party to another of retirement funds, the QDRO (or Order dividing the account), makes the transfer a tax-free transfer. This means neither party pays income taxes when the funds are transferred, but the receiving party will pay income taxes when the funds are accessed or distributed. We recommend that you meet with a financial planner prior to requesting the distribution of any retirement funds transferred to you as part of a divorce. Our firm works with several highly qualified financial planners.

The preparation, filing and approval of a Qualified Domestic Relations Order takes time and special attention to the details. Here are the basic steps of completing a QDRO from start to finish:

1. Gather information: You need information about both spouses including names, addresses, Social Security numbers, date of marriage and divorce, etc. This includes copies of the divorce decree or separation agreement which outlines the share going to each party. The Plan Administrator is also contacted for a model/form QDRO if the Plan has one (some plans do not).
2. Draft the QDRO: Depending on the Plan, the domestic relations order may have a variety of names; however, the different types of orders generally follow a similar format. All of them may be informally referred to as QDROs, even when they are technically named something else. Typically, the receiving party or their attorney drafts the QDRO. However, some plans are so specific that they require an expert to draft the QDRO (this is especially true for orders dividing military retired pay). If an expert is required, each party generally pays half of the expert’s drafting fees.
3. Approval by the parties: The draft of the QDRO is sent to the former spouse or his or her attorney for review and approval, or to both parties if drafted by an expert. The parties should accept the QDRO if it accurately reflects the parties’ agreement.
4. Approval from Plan Administrator: The draft of the QDRO is then sent to the Plan Administrator for pre-approval. The Plan Administrator may request changes in the draft QDRO. If the Plan Administrator requests any changes to the draft QDRO, those changes are made to meet the plan’s expectations or requirements. It is not unusual for the Plan Administrator to request or require changes; in fact, this happens quite frequently. Some plans do not review for pre-approval and will only review a QDRO once it has been signed by a Judge.
5. Signature of QDRO by Judge: Once the QDRO has been approved in draft form, both parties and/or their attorneys sign it and it is presented to the Court for signature by the presiding Judge. If a response cannot be obtained from the other party (or their counsel), then it may be necessary to file a motion with the Court requesting the entry of the QDRO or for a Presentment Hearing where the Judge will seek input from both sides before making a ruling.
6. Obtain a certified copy of the QDRO: Once a Judge signs the QDRO, the receiving party/alternate payee should obtain a Court-certified copy of the QDRO. A certified copy is one that bears the original signature and seal of the Clerk of the Court. A certified copy is then sent to the Plan Administrator for final approval, acceptance, processing and payment.
7. Final acceptance by the Plan: Final approval can happen very quickly, can take several months, or in some extreme cases, more than a year. As a standard practice, our firm will monitor and follow up with the Plan until the QDRO has been accepted.

Lastly, and most importantly, QDROs must be dealt with timely as part of the process of a divorce. Sometimes, Plan Administrators prefer to be notified at the start of a divorce and will “freeze” the retirement account from any loans or distributions while the divorce is pending. Some Plan Administrators also have extremely stringent deadlines in place, such as a one-year deadline to provide a QDRO or you lose the ability to have the Plan Administrator make any payment directly to the Alternate Payee. If this deadline is missed, the payee is left in the unfortunate position of trying to collect their percentage of the retirement account directly from their former spouse. The Military, for example, has a strict one-year deadline to assert any right to a Survivor Benefit. If that benefit is not claimed within one year, you lose that right and there is no other option available to select a Survivor Benefit.

Bottom line: QDROs are extremely important.  They can be complicated to prepare and it is never too early to begin discussing possible QDROs as part of your divorce process. Our highly qualified attorneys have decades of experience and expertise in the division of retirement accounts such as these.

Raesha de Ruiter Zylker, Paralegal for Terry & deGraauw, P.C. November 2024