Topics on this page
- What is a Qualified Domestic Relations Order (QDRO)?
- Do I need a QDRO?
- What Must A Qualified Domestic Order Include?
- When Should I Seek A Qualified Domestic Relations Order?
- Can I draft my own QDRO?
- Is there a limit on the percentage of the retirement plan benefit that can be assigned to someone else under a QDRO?
- When can a QDRO be issued?
- How can a QDRO be used?
- What paperwork should I take to my attorney?
- Will the plan type make a difference in the complexity or cost to create a QDRO?
- What type of plan do I or does my spouse have?
- What are some options for dividing a pension under a QDRO?
- How do I get information about my spouse’s retirement plan? My spouse refuses to give me a copy.
- When can I receive benefits under a QDRO?
What is a Qualified Domestic Relations Order (QDRO)?
Maryland law gives each spouse a right to an equitable distribution of all property obtained by either party during the marriage, including pensions and retirement assets. The Court determines whether pension or retirement benefits are marital property. If the pension or retirement benefits are marital property, the Court has the authority to transfer interest in the benefits. The Court’s goal is to distribute marital property equitably. A Qualified Domestic Relations Order (QDRO - pronounced “quad row”) is a type of domestic relations court order that permits an individual who is not the pension or retirement plan holder to receive all or part of the payouts of the plan. A QDRO recognizes the right of an “alternate payee” to receive all or part of a retirement or pension plan that belongs to another person. An alternate payee can be a spouse, former spouse, child, or other dependent of the participant of the plan. The participant is the employee covered by the retirement plan.
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.
- by agreement of the parties; or
- by the court if the parties cannot agree.
NOTE: 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.
Do I need a QDRO?
A wide range of benefits may be considered marital property, including retirement plans, pensions, Individual Retirement Accounts (IRAs), and other retirement assets. For many families, a retirement plan is the second largest asset (after a house). In Maryland divorces, retirement assets can be transferred from one spouse to another. To do this, you must have a court order in almost all situations. A QDRO will allow you to become legally entitled to your share of money in your spouse's retirement plan.
NOTE: 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 QDRO but may also be called Court Orders Acceptable for Processing or Qualifying Retirement Benefits Court Orders, to name a few.
What Must A Qualified Domestic Order Include?
A QDRO must meet certain federal and/or state laws requirements to be valid, accepted, and followed by the retirement or pension plan. If your QDRO doesn't include all of the right language and information, it won't be valid and the plan administrator won't accept it.
A QDRO must include:
- the name and last known mailing address of the participant and each alternate payee
- the name of each plan to which the order applies
- the dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee
- the number of payments or time period to which the order applies
In addition, the QDRO must comply with the rules of the pension or retirement plan. The QDRO cannot force the retirement fund to distribute funds in a manner inconsistent with the plan’s policies and procedures. For example, if the plan’s policies and procedures restrict lump sum payments, the QDRO cannot mandate the a lump sum payment to the alternate payee at the conclusion of the divorce proceedings.
Read the Law: 29 United States Code § 1056
A QDRO must be issued by a “state authority” (usually a court) through a judgment, order, or decree addressing a property settlement. Not all domestic relations orders “qualify” and can divide a pension plan.
The retirement or pension plan administrator 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.
When Should I Seek A Qualified Domestic Relations Order?
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.
If you are seeking a QDRO to divide a pension or retirement fund determined to be marital property, here are a few potential consequences of waiting to seek a QDRO:
- Retirement of employee-spouse: Once a participant begins collecting benefits from the retirement fund, it may be difficult to retroactively claw back the benefits that the non-employee spouse would otherwise be entitled to receive.
- Death of employee-spouse: If the retirement plan has any pre-retirement death benefits, the non-employee spouse will not be able to receive the benefits.
- Employee-spouse withdrawal or loan against account: Without a QDRO, the employee-spouse still has complete control over their retirement account. This means that they could reduce the value of the fund by withdrawing contributions or taking a loan against the account.
- Loss of access to financial records. Financial institutions typically only keep records for a limited period of time, usually seven years. The longer a non-employee spouse waits to seek a QDRO, the more likely it is that relevant evidence becomes more difficult to locate. This could affect the non-employee spouse’s ability to seek maximum contribution from the retirement or pension fund.
Can I draft my own QDRO?
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, 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.
Practically speaking, this is an area for trained professionals. The QDRO document can make a big difference in your future financial security. You want to have someone who regularly handles cases like yours and has significant experience draft this document.
Even some attorneys will not have the knowledge or expertise to draft a good QDRO. Ask an attorney how many QDROs 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 the percentage of the retirement plan benefit that can be assigned to someone else under a QDRO?
Federal law does not impose a limit. An alternate payee can receive all or part of the participant’s benefits.
When can a QDRO be issued?
QDROs are used most often as part of a divorce. They can also be issued to pay a support obligation like alimony.
How can a QDRO be used?
A QDRO can be used to assign future or current retirement benefits as part of a property settlement. A QDRO can also be used to pay a support obligation.
What paperwork should I 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.
- 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 plan type make a difference in the complexity or cost to create a QDRO?
Yes. Generally, retirement plans that are “defined contribution plans” (such as 401(k), 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 before negotiating an agreement or having the Court decide on a pension plan division, so you know all the options. Consider drafting the QDRO while negotiating an agreement or presenting your case to the Court, so that you understand and seek all the potential benefits of the pension plan.
What type of plan do I or does my spouse 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 options for dividing a pension under a QDRO?
The approach to dividing a pension will often differ depending on whether the QDRO is designed to provide support or be part of a property settlement agreement. 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 QDROs often (but not always) divide the participant’s retirement total benefit into two parts. The alternate payee can then receive the payment at a different time and in a different way than the plan participant. The alternate payee would have the same options as the plan participant. 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 an alternate payee a lump sum rather than an annuity.
Some retirement assets can 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.
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.
NOTE: Sometimes an IRA can be divided without the need for a QDRO by using transfer forms provided by the plan.
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 will not receive any payment unless the participant 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 Court to use subpoenas or depositions to obtain the documents you need.
When Can I Receive Benefits Under a QDRO?
- If it is 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 it is 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 it is 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.