“Q” Is For Qualified Domestic Relations Orders
As we continue to march through our discussion of divorce, we reach the letter “Q”, which is letter that bring much anguish when playing a game of Scrabble, but has an important meaning in the divorce world. When you are going through a divorce, you will likely come across the term “QDRO” (pronounced quad-dro). You may hear it a lot, but what does it mean?
QDRO stands for “qualified domestic relations order” and it is just a shorthand abbreviation for a specific type of court order that divides retirement assets. The Employee Retirement Income Security Act of 1974 (“ERISA”) imposes restrictions on certain employer-sponsored retirement plans to protect the employee/participant. Plans qualified under ERISA are prohibited from assigning or alienating a participant’s benefits, meaning the benefits cannot be transferred to another person. However, this restriction created an obstacle when an ERISA qualified retirement plan needed to be divided incident to a divorce so an exception was carved out by the Retirement Equity Act of 1984 (“REA”). REA provided that a participant’s retirement benefit could be assigned if it was done pursuant to a QDRO.
The requirements of all QDROs are fairly basic. A QDRO is a judgment, decree, or order from the court that is made pursuant to state domestic relations law. It addresses the division of an ERISA-qualified retirement plan for purposes of support (child support or alimony) or property division. The alternate payee, i.e. the party receiving the assigned retirement benefits, must be a spouse, former spouse, child, or other dependent of the participant. The QDRO must contain the name and address of the participant and alternate payee. Some retirement plans also require that the dates of birth, social security numbers, and phone numbers of the participant and alternate payee. The QDRO must contain the exact name of the retirement plan. For example, although parties may refer to a plan as the [name of employer] 401(k) plan, the official name of the plan may be the [name of employer] Savings Plan. The QDRO must specify the dollar amount, percentage, or method of calculating the amount or percentage to be paid to the alternate payee, as well as the number of payments or time period to which the order applies.
A QDRO cannot contain a provision (1) to provide the alternate payee with any type or form of benefit not otherwise provided under the plan; (2) to provide increased benefits; (3) to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order; and (4) to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and a subsequent spouse.
Retirement plans may also have additional requirements for QDROs that they will agree to implement based upon the terms of the plan. Therefore, it is important to have the QDRO prepared by an individual that is familiar with the QDRO process. Retirement plans that are not qualified under ERISA can sometimes be divided by court judgment, decree, or order as well. However, these orders may not technically be QDROs, even if generally referred as QDROs. For example, an order to divide a military pension would be entitled “Military Retirement Pay Division Order” or “Military Pension Division Order” and not a “Qualified Domestic Relations Order.”
If you have any questions about this topic or any other topic related to family law, please do not hesitate to contact our office.