What is a QDRO?

A Qualified Domestic Relations Order (QDRO) is a special legal document that the IRS and DOL recognizes as a method of allowing the tax-free transfer of retirement plan assets to a non-participant spouse and/or dependant(s) pursuant to a divorce and is made in accordance with state domestic relations law. The QDRO was created by the Retirement Equity Act of 1984 as an amendment to the anti-alienation provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which protected retirement plan assets from creditors. A retirement plan will not divide benefits or provide for payments without a QDRO that meets with the Plan Administrator’s approval. Even a signed court-certified QDRO may be rejected by the Plan Administrator for failing to meet their requirements, as the Plan Administrator has been given the sole authority by ERISA to determine what qualifies as a QDRO, not the courts.

Must an Attorney draft a QDRO?No, there is no legal requirement that an attorney drafts your QDRO. The provisions in ERISA that created QDROs and their requirements are a few pages long. The types of retirement plans and benefit options available to employees in the United States could fill up thousands of pages, therefore, you need a retirement plan expert who knows the intricacies of retirement plans and what the Plan Administrator expects to see in a QDRO for approval. Attorneys are legal experts, not necessarily retirement plan experts, that is why many attorneys utilize our services for the benefit of their clients. As a former Plan Administrator and retirement plan expert, Thomas Toxby adds unique advantages to the QDRO process that will save you time and money.

What is the QDRO process? As soon as it is known that a retirement plan is to be divided during settlement negotiations, a Summary Plan Document should be requested from the retirement plan and a QDRO drafted and submitted to the plan for pre-approval. Some Plan Administrators will take a few weeks to review and approve the QDRO, some Plan Administrators may take months or even up to a year to review and approve the QDRO. The sooner the approval process begins, the more likely the final QDRO will be ready for entry with the Court along with the final order for dissolution.

When should a QDRO be entered with the Court? Concurrently, or as soon as possible to the entry of the final orders for dissolution, the final QDRO should be submitted to the court and then served on the retirement plan for implementation. As soon as the final judgment for divorce is made, the non-participant ex-spouse is vulnerable to losing their awarded benefits should the participant spouse pass away prior to the retirement plan being served with the court-certified QDRO. Time is money with regards to QDROs, don’t let months or years slip by after the divorce before you get a QDRO served on the retirement plan.

What needs to be in the Settlement Agreement? Your Settlement or Separation Agreement that deals with property division should be very clear and detailed with regards to the division of retirement plans. In many cases around the country where there is a dispute over the QDRO or an ambiguous QDRO that didn’t properly award the amount or form of benefits expected, the Courts will go back to the language of the Settlement Agreement to look at what that awarded. Many Alternate Payees have lost out on retirement plan benefits because the Settlement Agreement was silent or unclear on an issue, and very few Courts will go back and revisit the agreement to change the provisions regarding the retirement plans. Toxby & Associates can help draft the Settlement language to make sure all the pertinent provisions are articulated clearly.

What is a Nunc Pro Tunc QDRO? Nunc Pro Tunc means “Now for Then” and it is an order that will attempt to retroactively correct a previous QDRO or court order. Typically these orders are used to correct an administrative error or to clarify the intents of the Settlement Agreement when the original QDRO failed to do so. They will not alter or change the Settlement Agreement, but can be used to attempt to secure survivor benefits, for example, or target a retirement plan that was concealed during Discovery.

Are QDROs always “aggressive”? Not necessarily, and it depends on who is drafting it and how the provisions are explained or concealed. While I have seen many QDROs that have clearly taken advantage of one party over another, it does not have to be that way. Many couples who go through divorce mediation do not want an aggressive QDRO drafter, they want someone who will explain the provisions in an open and balanced manner, and draft the order to be equitable with their settlement agreement. As long as both parties understand what the QDRO will accomplish and the manner in which benefits will be awarded, the QDRO can be a neutral document. A 50/50 split is just that, each party is a co-owner in their share and they should both have the same rights and entitlements to their share without an aggressive drafter stepping in and favoring one party over another. Since I have seen the tactics employed by aggressive drafters, either by limiting benefit options or awarding a larger share than what the Settlement Agreement has called for, such as abusing benefit formulas in a QDRO, I am able to review opposing counsel's QDROs for just such aggressive language.

What type of division order is required for Federal plans? Since Federal plans; the Civil Service Retirement System (CSRS), the Federal Employees Retirement System (FERS) and the Thrift Savings Plan (TSP), are subject to the Code of Federal Regulations and not ERISA or the Internal Revenue Code or the Retirement Equity Act of 1984, one cannot submit a QDRO to the Office of Personnel Management (OPM) for division of Federal Plans. The OPM will surely reject it. The OPM does recognize a form of division order known as a Court Order Acceptable for Processing (COAP). The COAP can divide retirement benefits and award survivor benefits, the OPM has no approval process in place, so properly crafting the COAP to comply with the OPM’s requirements is essential.

What type of division order is required for Military Plans? Just like Federal Plans, military retired pay is exempt from ERISA and the related laws governing private retirement plans. Thus, the Defense Finance and Accounting Service (DFAS) will require a unique division order to divide retired pay and award survivor benefits to former spouses of Active Duty, Reserve or National Guard members. The military has a number of requirements that must be met before the DFAS will pay an ex-spouse directly, such as the “10 year rule”, where the parties must have been married for at least 10 years which overlaps with 10 years of military service in order for the non-member spouse to be paid directly from the DFAS.

What type of division order is required for other non-ERISA plans? Many state retirement systems, Individual Retirement Accounts (IRAs and ROTH IRAs) as well as Railroad retirement benefits may be divided. They are not required to divide benefits pursuant to ERISA, but many follow the State’s domestic relations law and property division statutes and allow for such a division. Many custodians of IRAs will accept a letter of instruction for division. The Colorado Public Employees Retirement Association (PERA) allows for a division of benefits, but has strict timing and document requirements to accomplish a division. Each entity is different and has their own procedures and requirements that must be followed to accomplish a division.

This is a short list of the issues you may encounter with your division of retirement benefits, we would be happy to discuss the specifics of your individual case, there is no charge until you formally retain our services, so call us today for a free consultation!