Qualified Domestic Relations Order
Qualified Domestic Relations Order (QDRO) is a separate legal document that must be included as part of divorce settlement documents whenever retirement plans are governed by federal ERISA law. The QDRO establishes your soon to be ex-spouse's legal right to receive a designated percentage of your qualified plan account balance or benefit payments.
Since your ex becomes entitled to this money, he/she will also be responsible for paying the related income taxes when that money is received in the form of a pension, annuity, or withdrawals.
Also, the QDRO arrangement permits your ex to withdraw his/her share of a 401k plan or 403b plan and roll the money over into his or her own IRA to the extent current withdrawals are permitted by the terms of the qualified retirement plan. The IRA rollover procedure allows your ex to take over management of the money, while continuing to postpone taxes until funds are withdrawn from the IRA. Once again, the important point from your perspective is that your ex will be the one who owes the taxes.
The requirements for QDRO preparation and submission and approval process with the QDRO Plan Administrator are highly complicated and vary from Plan to Plan. Often a separate professional who handles QDROs in divorces may be hired to prepare these documents. One of the party’s divorce attorneys may be proficient in this area and handle this aspect of the divorce.
There are many ways to negotiate and address the allocation of the parties’ retirement accounts in a divorce depending upon the type of Plan, the value of the interest in the Plan, whether there are multiple retirement accounts in the couple’s financial portfolio, the ages of the parties, the length of the marriage, and the duration of interest in the retirement account acquired during the marriage and/or prior to marriage.
There are multiple types of plans governed by ERISA law that require a QDRO, such as 401ks, 403bs, and pensions. Other pensions, such as ERB or PERA, require similar orders which are not technically QDROs, but which serve a similar purpose. In addition, there are Military Pensions and Military TSP retirement accounts, which require special Military Orders to allocate these interests.
The important point is that all retirement assets should be disclosed, understood, and allocated fairly in the divorce, and the related issues of taxes, beneficiary designation, and survivor annuity should be clearly accounted for and dealt with in the divorce documents and retirement division orders, whether they are military orders incident to divorce or ERISA QDROs or IRA transfer documents.
Contact Claire Sanderson Hanna Law Firm with all your family law issues. Put our experience to work for you by calling (505) 243-0900.
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