What is a QDRO: Dividing Pensions, 401(k)s, and IRAs in Divorce
The Internal Revenue Service defines a Qualified Domestic Relations Order (QDRO) as “a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant.” A QDRO grants a spouse, former spouse, or dependent, also known as “alternate payees” the right to a portion of the participant’s (employee’s) work-sponsored retirement benefit plan.
QDROs are typically used in divorce proceedings to divide pensions and other retirement accounts that are IRS tax-qualified such as 401(k)s and 403(b)s deemed to be a part of the marital estate because they were created or enhanced during the marriage. It’s important to note that QDROs must comply with the federal Employee Retirement Income Security Act (ERISA) established by the U.S. Congress for the purpose of regulating employer-sponsored retirement plans and protecting beneficiaries and participants.
QDROs must not only comply with ERISA as amended by the Retirement Equity Act, but in the State of Georgia they must also be approved by a superior court judge and the plan administrator(s) of each impacted retirement account. This is important where a spouse might have multiple qualified retirement plans.
A QDRO is a sophisticated legal instrument; a court order, they are often incorporated into a divorce decree but may be drafted following the dissolution of a marriage. A well drafted QDRO will include most of the following:
· name and last known mailing address of the alternate payee
· name of the covered retirement plan
· the percentage or dollar amount the alternate payee is to receive
· the QDRO’s shelf life, including start date and number of payments to be made
· what happens if the retirement plan is terminated
· and what happens in the event of the death of either the participant or alternate payee. Keep in mind, this is not an exhaustive list. Also remember, QDROs are typically drafted by attorneys at the behest of a beneficiary and must be written correctly to be enforceable. It is foolhardy for both inexperienced litigants and attorneys to attempt to draft one yourself. Even as divorce and family law attorneys this is a service, that we at Shakhan & Wilkerson Divorce and Family Law typically outsources given our client’s assets and rights at stake.
Because a divorce decree rarely meets an employer’s QDRO requirements it’s usually advisable to have one drafted by an expert early in the divorce proceedings when there are employer-sponsored retirement benefits at stake. Delays in creating an enforceable QDRO can result in forfeiture of benefits awarded under the divorce decree.
QDROs have great utility and can be beneficial but may not always be the appropriate solution for dividing retirement assets of the parties. Individual Retirement Accounts (IRAs) and Keogh plans are of such a species; they are private retirement plans which are not governed by ERISA. In this instance a simple decree may suffice to properly apportion the assets however, special tax rules determine how an IRA is distributed. And in the event of an early withdrawal there may be heavy tax penalties impacting the participant and the alternate payee.
Complicated stuff, right? You bet. But you’re in great hands with the Shakhan & Wilkerson Divorce and Family Law Firm. We identify which retirements plans may be subject to division in your divorce and which plans may not, saving you time, money and a lot of headache.
Give us a call today at 404-999-9529 (404) 999-9LAW for a no-cost legal consultation.
Written by Attorney Genghis X. Shakhan