What is a QDRO?
QDRO’s are governed by federal law. A QDRO, as defined by Internal Revenue Code Sec. 414(p)(1)(A), is a court order in a divorce case that divides ownership of an employee-sponsored retirement asset. Typically a QDRO is prepared after a settlement or trial along with the Decree of Divorce and other related court orders and transfer documents. It essentially orders the plan administrator to divide the asset between the parties and gives instructions on the specific details of the division of the asset.
When a QDRO is Needed
Most assets divided in a divorce case will not require a QDRO. For example, real estate, vehicles, non-retirement financial accounts, and even IRAs (usually) can be divided and transferred between the parties without the need for a QDRO. That is good because QDROs add some additional work and expense. The only assets that absolutely require a QDRO are employee-sponsored retirement assets, typically pensions and 401k accounts. Division and transfer of these assets is simply not possible without a properly prepared QDRO that is approved by the plan administrator.
What Information Must a QDRO Contain?
- The name and address of each party
- The specific name of the plan
- The dollar amount or percentage of that is to be paid to the alternate payee (sometimes this is done with a formula)
- The number of payments or time period to which the order applies
What Provisions Can NOT be in a QDRO?
- provide any type or form of benefit not otherwise provided under the plan
- provide for increased benefits
- pay to an alternate payee benefits that are already required to be paid to another alternate payee under a previously approved QDRO
- pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse
Brief Summary of the QDRO Process
Often the attorney for the party receiving a share of the other spouse’s retirement will draft the QDRO. Sometimes that attorney (or the client) will hire a QDRO attorney specialist to prepare the QDRO. The draft is reviewed and signed by both attorneys and often both parties as well prior to submission to the court. Often the QDRO is submitted and signed the same time as the Final Decree, although it is not uncommon for delays to occur with the preparation of the QDRO and for it to be submitted sometime shortly after the Decree. For example, some attorneys prefer to first provide a draft to the plan administrator to obtain pre-approval prior to submission to the court.
Once the court has signed the QDRO a certified copy of the order is obtained and submitted to the plan administrator. If approved the appropriate division is made. If for some reason the QDRO was not approved the plan administrator is required to explain the reason for rejection. Then the party can submit an amended QDRO to the court and start the process all over again.
About the Author
Scott Morgan has practiced family law in Texas since 1994, and is a guest writer for this blog. Scott is board certified in family law by the Texas Board of Legal Specialization and is the founder of the Morgan Law Firm which has offices in Houston, Austin and Sugar Land. Currently Scott handles primarily Travis County divorce cases from the Austin office.