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Understanding QDROs: Dividing Retirement Plans in Divorce

Do you have a 401k? A military pension? Is your spouse a federal employee or a police officer? Did you know that getting a divorce doesn't automatically divide your retirement assets?

Simply stating in your divorce documents that one party is awarded marital or community property does not divide the retirement benefit. For any type of retirement account division, you need a qualified domestic relations order (QDRO).

What is a QDRO?

A QDRO is a court order which is used to divide a retirement plan. It can also be used to collect alimony or child support. Note: For a private plan, the order may be called a qualified domestic relations order. For a public plan, it may be called a domestic relations order (DRO).

How do you get a QDRO?

Work with an expert familiar with preparing and filing QDROs for best results. An incorrectly prepared or filed QDRO could prevent you from accessing critical retirement funds down the road. Thus, you want to do it right. Hello Divorce partners with QDROCounsel to offer QDRO preparation and filing for a low-cost, flat-rate fee. 

Some retirement plans offer QDRO forms to divorcing couples. However, these sample QDRO documents can be confusing and are often drafted to benefit the retirement plan. Thus, they are not necessarily trustworthy. No one-size-fits-all QDRO exists. For an accurate and fair division, a QDRO expert should prepare your QDRO plan specifically for you. They should base the plan on your retirement benefits and the facts of your case.

When should I start thinking about dividing retirement benefits?

Start thinking about dividing retirement assets at the beginning of the divorce process. Retirement accounts gain value over time and can serve as a substantial asset in negotiation. Get your QDRO drafted before the end of your divorce so that when your judgment is filed, your QDRO can be filed then, too (or soon thereafter).

You need correct retirement plan information for your financial disclosure documents. You also need the best contact information for each retirement plan. This is needed to notify the plan to hold payment from the account using tools like joinder pleadings (California only) or a notice of adverse interest. Both parties are protected when you deal with this as soon as possible.

Further, you may need to do a valuation of the retirement account. Handle this before the end of your case, if possible. Your divorce or legal separation judgment dictates how retirement benefits should be divided in a QDRO. As such, it's a good idea to understand how each account should be divided.

How do I place a hold on a retirement plan(s)?

At the beginning of your case (especially if you are the nonmember spouse), prepare a Notice of Adverse Interest or Joinder Pleadings (California only). Serve this on the participant's retirement plans as soon as possible to create a temporary hold on the retirement account. Many people mistakenly assume that a nonmember spouse is fully protected once these documents are served. The truth is, while many plans place a temporary hold, withheld benefits are not guaranteed. But the service of these documents on most plans is the best you can do to protect the marital interest in a plan until a QDRO is filed and served. These documents have no effect on federal public plans (FERS/CSRS), military plans, and IRAs.

Who pays taxes?

One of the purposes of a QDRO is to allow the nonmember spouse to pay taxes on benefits instead of the participant. If the nonmember is not rolling over funds to an IRA or other defined contribution plan, they will pay taxes on whatever payment they receive from the plan with a valid QDRO. Generally, a participant does NOT pay taxes on a nonmember's share unless the QDRO is for support.

Do I need a QDRO if the entire retirement benefit is awarded to the participant?

The only reason to do a QDRO is if any share of retirement benefits (including any survivor benefits) goes to a former spouse. If that's not the case, the judgment should clearly state that the participant receives 100% of the retirement benefit and the former spouse waives their interest in it. Note, however, that if the participant is already retired, irrevocable survivor benefits may be awarded to the former spouse. These cannot be waived under law.

RELATED: Do you understand what types of retirement plans exist? Read our resource, What is a QDRO?

What happens if I don't do a QDRO?

In divorce, if a QDRO is not done before a participant's death or retirement, the ex-spouse (the nonmember of the retirement plan) may not receive any funds. That's why it's so important to not delay getting your QDRO. If you're already divorced, it's not too late to do a QDRO. Move forward with this paperwork now so you don't lose benefits. At QDROCounsel, we often get calls from ex-spouses asking to create a QDRO after a participant has died. In many cases, there is no way to help them.

Can a domestic partner get a QDRO?

A domestic partner dissolution may divide a state's public plan with a domestic relations order. However, a private employer plan and any federal plans (e.g., federal employees or military) will not accept a QDRO.

For domestic partnerships, direct payments to a former spouse from a retirement plan can be paid from a state public plan. However, they cannot be paid from a private employer plan or federal plan.

For domestic partners, many times, the parties will equalize and offset the retirement asset against some other asset if the plan cannot be divided with a QDRO. Or, the parties may choose to retain counsel to draft a pay-over order. This pays the nonmember a share of the retirement asset. It is the experience of the partners at QDROCounsel that pay-over orders can be difficult for both parties due to enforcement and tax issues. Settling, if possible, is often the best option.

What if my spouse refuses to sign the QDRO?

The QDRO will be implemented by a retirement plan as long as it is signed by a judge and filed with the court. If one party refuses to sign, you must submit the QDRO to the court based on your local plan rules. You may need extra legal help getting the QDRO filed.

But how do QDROs actually work?

After a plan determines that the order meets the requirements of a QDRO, the former spouse can expect the plan (not the ex-spouse) to directly pay their share of the benefits. For example, if the plan is a pension, each party receives their share directly from the plan without needing to go through the other. If the plan is a 401k, community and separate property shares are segregated, and each spouse has their own retirement account. Each recipient pays tax only on the amount received.

The importance of hiring an expert

A QDRO should not be prepared by anyone other than an expert trained in marital property valuation and division. In some cases, QDROs are even more complicated than anything mentioned here. For example, prior to the preparation of a QDRO or division of a retirement plan, community and separate property interests may need to be valued or traced. While not all issues in a divorce require a QDRO specialist or lawyer, this is an issue of note.

Are you ready to file a QDRO? Secure your retirement post-divorce at a transparent, flat-rate fee. Click to learn more.