Why Do I Need A Qualified Domestic Relations Order ("QDRO")

When couples divorce and there are retirement assets a Qualified Domestic Relations Order or a Domestic Relations Order ("QDRO" or "DRO") will often be necessary for the division of the asset. For purposes of this blog I will refer to all as a QDRO. Most (but not all) pension plans as well as 401k plans are covered by the federal law known as ERISA. Such plans can only have any of the benefits paid to the non-participant spouse if there is a QDRO. So the short answer is that without a QDRO the Plan Administrator will not send you a check if you are not the participant. That doesn't mean that the participant cannot pay the former spouse but many problems may arise if the participant doesn't pay regularly or the proper amount and there will likely be tax issues that arise.

Each Pension Plan and 401k Plan establishes their own form and required language that the QDRO must include or the Plan Administrator will reject it. So even if a judge has signed the QDRO if the Plan determines that it does not conform it will be rejected and not followed. So prior to submitting the QDRO to the court for signature it is important to have the Plan review it in advance and to approve or state what must be changed for the QDRO to be "qualified". Then when a judge signs the QDRO and the Plan receives the QDRO it will be followed.

The QDRO will determine how the benefits/monies should be distributed to the participant and former spouse. Usually it is a percentage of the portion that was accumulated during the marriage. So if an employee worked for a company for 20 years but only 15 were during the marriage then the marital portion would be 75% and the parties agreement would control what portion of the 75% goes to each person.

If there is a 401k account the QDRO will often need to specify a dollar amount or a percentage that is to be paid to the former spouse. Many 401k plans will not perform any calculations to determine growth of any pre or post marital portion and therefore it is often important to know how the Plan Administrator will implement a requested division prior to having the court sign the QDRO.

Spouses that have IRAs will not need a QDRO as IRAs are not covered by ERISA. So the parties are free to come up with their own dollar amount or percentage and to divide the account by mutual agreement.

The preparation of a QDRO is often not simple because there are numerous options regarding payment choices, survivor benefits, Cost Of Living Adjustments, exclusion of pre and post marital contributions and exclusion of a disability enhancement. It is highly recommended that each side have an attorney if a QDRO is necessary to avoid future problems cause when the division does not take place and the former spouse did not receive their share.