For many families, a retirement plan is the second largest (after a house) asset. A wide range of benefits may be considered as marital property including retirement plans, pensions, Individual Retirement Accounts (IRAs), and other retirement assets. Retirement and pension assets may be provided through an employer (whether private or public/government), the military, and/or contributions a spouse makes to individual accounts. Retirement assets include accounts like 401(k)’s, 403(b)’s, 457 plans, Thrift Savings Plan, TIAA/CREF, and many others.
In Maryland divorces, retirement assets can be transferred from one spouse to another. To do this, you must in almost all situations have a court order. The exact name of the order will vary based on the type of plan. The most common order for a private pension is called a Qualified Domestic Relations Order (QDRO), but may also be called Court Orders Acceptable for Processing (COAP) or Qualifying Retirement Benefits Court Orders, to name a few.
A QDRO (pronounced “quad row”) is a specific type of domestic relations order that recognizes the right of an “alternate payee” to receive all or part of a retirement or pension plan, which belongs to another person. (The reference to QDROs in this article is a general discussion that may be relevant to many types of retirement orders, and not exclusively QDROs.)
The division of a retirement or pension plan is very complicated, as is the drafting of the QDRO. If your divorce involves retirement or pension plans, you should strongly consider consulting with an attorney for advice about the specific retirement or pension plan, the types of benefits included in the plan, and about the drafting of any necessary QDRO.
A QDRO is usually used to:
- provide support payments (temporary or permanent) to an “alternate payee” or
- divide retirement or pension plans accumulated during the marriage when a divorce is granted.
There are two common ways that the division of retirement or pension plans is decided in a divorce: 1) by agreement of the parties; or, 2) by the court if the parties cannot agree. A division of a retirement account or pension plan can be accomplished at the time the divorce is granted. In almost all instances, a court order is required for the division to be complete.
Some retirement assets will be divided by a rollover from one retirement account to another (unless the receiving spouse elects to receive cash, which will trigger taxes and may result in penalties). Other retirement assets, like pensions, may be divided so that the recipient spouse receives pension payments in the future, often tied to the retirement of the employee spouse. Pension plans may also offer the former spouse rights to benefits that do not exist in retirement plans like 401(k)’s, IRAs, and the like. The division of a pension plan can involve survivor benefits, payment of those benefits, trigger entitlement to life or health insurance, and cost of living adjustments (COLAs), among others.
A QDRO must meet certain requirements under federal and/or state laws in order for it to be valid, accepted, and followed by the retirement or pension plan. Read the Law: 29 UCS 1056
A QDRO must be issued by a “state authority” (usually a court) through a judgment, order or decree, which addresses a property settlement. Not all domestic relations orders “qualify” and can divide a pension plan.
The administrator of the retirement or pension plan must decide whether the order submitted is acceptable to the plan and will be followed by the plan. Some plans will review a draft QDRO, which may involve a review fee, and advise if the QDRO is acceptable before it is submitted to the court. Other plans will not review a draft QDRO, and the QDRO may need to be amended after review and rejection by the plan.
The timing of the preparation and entry of the QDRO by the court, in relation to the granting of the divorce and/or retirement of the employee spouse can be very important and depends upon the particular retirement or pension plan. You should consider consulting with an attorney about whether this timing could impact your rights to a retirement or pension plan.
Sometimes an IRA can be divided without the need for a QDRO, and using transfer forms provided by the plan.
Some pension plans may allow transfer of benefits to a spouse, former spouse, child, or other dependent. Some retirement and pension plans allow the recipient to leave the remainder to a child. Sometimes benefits under a pension plan terminate upon the remarriage of the recipient spouse.
Can I Draft My Own QDRO?
Practically speaking, this is an area for trained professionals. For this document (which will make such a big difference in your future financial security) you want to have someone who regularly handles cases like yours and has significant experience. Even some attorneys will not have the knowledge or expertise to draft a good QDRO. Ask an attorney how many QDRO’s he or she has done and what percentage of their practice involves divorce or related matters. An attorney whose practice does not focus on the area will take much longer to investigate, research and then draft the appropriate document (and therefore cost you more) and will be more likely to make a mistake.
Is There a Limit on What Percentage of the Retirement Plan Benefit that can be Assigned to Someone Else Under a QDRO?
The federal law does not impose a limit. An alternate payee can receive all or part of the participant’s benefits. An alternate payee is the spouse, former spouse, child, or other dependent of the “participant” as identified in the QDRO. The participant is the employee covered by the retirement plan.
When can a QDRO be Issued?
Qualified Domestic Relations Orders (QDRO’s) are used most often as part of a divorce. They can also be issued to pay a support obligation.
How can a QDRO be Used ?
A Qualified Domestic Relations Order (QDRO) can be used to assign future / or current retirement benefits as part of a property settlement, or to pay a support obligation.
What Paperwork Should I Find to Take to My Attorney?
- The plan summary booklet for each pension
- The plan document (full set of the rules) for each pension. (The rules for most government pensions will be in the law and regulations and can be found at a law library.)
- Proof of your relationship (and that of your child or children) to the plan participant.
- A current statement for all retirement and pension plan assets.
Will the Type of Plan Make a Difference in How Complex and Expensive it will be to Create a QDRO?
Yes. Generally, retirement plans that are “defined contribution plans” (such as 401(s), 403(b), 457 plans, TSPs, TIAA/CREFs, IRAs, and the like) present fewer drafting challenges and may be less expensive to draft. However, pension plans (such as government, public, military, or private company pensions) vary significantly. It is best to seek legal advice prior to negotiating an agreement or having the court decide a pension plan division, so that you know all of the options. Consider drafting the QDRO simultaneous to negotiating an agreement or presenting your case to the court, so that you understand and seek all the potential benefits available under the pension plan.
How do I Know What Type of Plan My Spouse or I Have?
The employee’s copy of the plan summary or the plan administrator (organization, committee person - responsible for overseeing the plan) will indicate whether the plan is a defined contribution or a defined benefit plan. The contact information will be in the front of the plan document.
What are Some of the Options for Dividing a Pension Under a QDRO?
Often the approach to dividing a pension will differ depending on whether the QDRO is designed to provide support or to be part of a property settlement agreement. FYI – If you are seeking to have your spouse’s pension divided – your spouse is called the “participant” and you are the “alternate payee”.
Marital Property Settlement Agreement – These QDRO’s often (but not always) divide the participant’s retirement total benefit into two parts. The alternate payee (you) can then receive the payment at a different time and in a different way than the plan participant. The alternate payee (you) would have the same options that the plan participant (your spouse) would have. For example, you might be able to take benefits at the “early retirement age” while your ex-spouse waited until full retirement. Both of you would still have to follow the plan rules.
Some plans will pay a lump sum rather than an annuity to an alternate payee.
Support – Alimony, Marital or Child Support – Another approach is to divide each benefit payment. This approach is often used when the participant has already begun to receive benefits and has an ongoing support obligation. Agreements usually specify a percentage and a time period.
Under this approach the alternate payee (you) will not receive any payment unless the participant (your spouse) receives a benefit or is in pay status.
Other questions to be resolved include whether there are survivor benefits and, if so, will and how they be divided.
How Do I Get Information About My Spouse’s Retirement Plan? My Spouse Refuses to Give Me a Copy.
Call your spouse’s employer to find out who administers the pension plan. Usually the human resources department will have that information. They are unlikely to give you any personal information over the phone, but you should be able to obtain the general contact information for the pension plan administrator. Ask the administrator how to handle the request. You should make the request in writing. They may require that your request be in writing and there may be a charge.
The plan administrator for your spouse’s employer (or former employer) can be the best source of information about the plan for potential “alternate payees” such as the plan participant’s spouse, child(ren) or other dependents. Ask for a copy of the summary plan description and a statement of the participant’s benefit entitlements. The Federal Department of Labor (DoL), which interprets the QDRO law, recommends that plan administrators provide this information. DoL notes that a plan administrator may require you to provide enough information to prove that you are making the request in connection with domestic relations or divorce case.
If asking for the information is unsuccessful, you may need to file suit in order to use subpoenas or depositions to obtain the documents you need.
When Can I Receive Benefits Under a QDRO?
If a defined contribution plan and the transfer is by a rollover, the transfer will occur as soon as the plan accepts the QDRO and can make the transfer happen.
If a pension plan, and your benefit is a share of the participant’s benefit that s/he is already receiving, you will be eligible for benefits on the date listed in the QDRO (assuming it is not before the date that the plan gets a copy of the QDRO).
If a pension plan and the participant is not already receiving benefits, then most likely on the participant’s retirement or at your “earliest retirement age”, depending upon how the pension is divided
For more information, see the books below. They should be available at any of the public law libraries in the state.
Carol G. Cooper et al., Property Disposition in Maryland, 153-169 (MICPEL 2004)
Cynthia Callahan & Thomas C. Ries, Fader's Family Law §15-3 (Lexis Publishing 2011)