(Q)DRO / Retirement Plan Division

What is a (Q)DRO?

A Qualified Domestic Relations Order, known as a (Q)DRO (pronounced “qua-dro”) is a judgment or order used to divide assets in qualified retirement plans such as 401(k)s or pension plans. The (Q)DRO must follow state domestic relations law and must relate to child support, alimony/spousal support, or other marital property rights. The spouse who contributed to the plan (time or funds) is referred to as the “Participant”. The other spouse is the “alternate payee.” An alternate payee can also be a former spouse, child, or other dependent. When properly completed, the plan will treat the alternate payee as if s/he were a plan participant, with the designated share paid directly to him/her.


Do I need a QDRO?

In a divorce, a domestic relations order (DRO) lays out the division of retirement assets between the participant and the alternate payee. A stricter type of DRO known as a QDRO is necessary for dividing assets from a qualified retirement plan covered by the Employee Retirement Income Security act of 1974 (ERISA). ERISA covers both defined benefit plans, such as pension plans, and defined contributions plans, such as 401(k)s, 403(b)s, or employee stock ownership plans. IRAs are not covered by ERISA, so you do not need a QDRO to divide the assets in most IRAs.

If the alternate payee and the participant agree not to divide the retirement/pension plan (each keeps their own or they agree to offset the estimated value of the plan with other assets, such as a house or another investment), a (Q)DRO would not be required. There are serious risks to such asset “swapping”. See our article “The Great Retirement-Swap Imbalance” (Tim, I’ve attached the article to this email – I’d appreciate your input).

What information do I need to gather and when?

It can take time to find what plans you or your spouse have, and you may have to look at prior employers to find any plans that may or may not have transferred, or may have changed in some way, as a result of a company merger or buyout, or just a change of employment. Remember, not all benefits will appear on your pay stub. You should contact your human resource department to find out what plans you have. You will need the correct plan name and the contact information for the plan administrator. You will also need the date you started the plan, the estimated value of the plan as of your date of marriage, if you started accruing benefits before marriage, the estimated value of the plan as of your date of separation, and the most recent statement. The sooner you start gathering the information, the smoother your process will be. See our article “The Key to Success when Dividing Retirement Plans in a California Divorce”. (Tim, I’ve attached the article to this email – I’d appreciate your input)

What is a defined benefit plan?

A defined benefit plan is a retirement plan or pension plan that is qualified under ERISA and the Internal Revenue Code (IRC) that guarantees the participant a stated benefit at their retirement date. Typically, the benefit amount is based on a formula that factors in the participant’s years of service and final average compensation. The form of benefit paid under this type of plan is usually a monthly payment.

What is a defined contribution plan?

A defined contribution plan is qualified under ERISA and the IRC that provides for contributions to be deposited directly to individual account(s) that are established and maintained for each plan participant. The contributions to the plan may be made by the employee or the employer, or some combination of both. Generally, the form of payment for a defined contribution plan is a single lump sum payment of the account balance. The account balance is made up of the contributions made to the plan along with the investment earnings and/or losses on those contributions. Investment choices are made by the participant and/or the employer in certain cases (i.e. profit sharing plan). Payment can be made to the employee when they retire or otherwise terminate employment with the employing company.

There are several types of defined contribution plans, including profit sharing plans, thrift plans, 401(k) plans, retirement savings plans, stock bonus plans, and employee stock ownership plans.

What are the alternate payee’s rights in a plan and responsibilities once a QDRO is filed?

As a beneficiary under the plan, the alternate payee has the right to receive plan information and materials to understand the benefits s/he will receive and to make informed decisions about the manner in which s/he will receive benefits.

If the QDRO divides a defined benefit plan which pays benefits upon the participant’s attainment of a certain age (generally, age 55), the Plan will not notify the parties when they are eligible for benefits. Therefore, it is the alternate payee’s responsibility to learn when the Plan will permit an early distribution and to notify the Plan when s/he wants payments to begin. It is always the alternate payee’s responsibility to notify the plan of any change of address so that s/he receives updated information and materials concerning the benefits. And, if the QDRO provides that the alternate payee has the right to designate a beneficiary, s/he must contact the Plan immediately and complete the proper beneficiary designation forms.

What are the participant’s rights in a plan and responsibilities once a QDRO is filed?

After the QDRO is filed, the participant should contact the Plan to review his/her beneficiary designation and make any necessary changes. A U.S. Supreme court decision held that even if the divorce judgment revokes the beneficiary designation of the former spouse, unless the participant changes that beneficiary form with the plan, the plan will be required to distribute benefits to the former spouse. Kennedy v. Plan Adm’r for Dupont Sav. & Inv. Plan, 129 S. Ct. 865; 172 L. Ed.2d 662 (2009). Participants should immediately contact the Plan and complete a new beneficiary designation form.

What if my spouse will not sign the (Q)DRO?

It is a recommendation that you file your (Q)DRO concurrently with your divorce judgment, if possible. If your spouse will not cooperate, you will need to retain individual litigation counsel to appear in court to file the (Q)DRO.

Joint and Neutral Processed (Q)DROs

Our office offers Joint and Neutral Processed (Q)DROs as a solution for divorce professionals and both parties to ensure any QDRO or DRO is prepared correctly and in a balanced way based on California law, court order, and/or the parties’ own agreement. We work with the couple and/or their divorce professionals as a neutral to divide the benefits.

You will receive a general questionnaire and plan questionnaires. These questionnaires collect essential information we need to identify and assess the retirement benefits in your case and provide recommendations on how best to handle them. The information is also necessary to prepare any (qualified) domestic relations order to divide the retirement benefits. We ask that you complete the questionnaires to the best of your ability, and we are here to help you if needed. Often, we can identify the plan contact information needed. If more information is needed, we will let you know. Each plan will require a name and address of each party in the (Q)DRO. in most cases, a plan will also require the dates of birth and Social Security numbers for both parties which will be provided under separate cover to the plan.

Once we have the completed questionnaires, we will incorporate this information as part of reviewing all the different aspects of your case. This can take several weeks to review.

In most cases, the first correspondence our firm sends out to a retirement plan is a proposed (Q)DRO for the plan administrator to review. This part of the process is to obtain a “preapproval” of the (Q)DRO from the plan, if possible. You will receive a copy of this correspondence. We encourage you to review the (Q)DRO and attachment with confidential information to ensure that the information is correct. Please let us know if changes are required and if you have any questions or concerns regarding the (Q)DRO. changes can be made to the (Q)DRO at any time during this part of the process and a revised (Q)DRO can be resubmitted to the plan.

Although different plans vary, most plan administrators respond to our request for a pre-approval within 30 to 60 days. There are some plans that require additional time. We prefer to get pre-approvals when possible in case the plan administrator requires any edits before we file with the court. We will let you know when we receive the pre-approval, at which point we will need your signatures on the (Q)DRO to file it with the court. The court typically takes an average 30 to 60 days to return a filed certified copy of the (Q)DRO to our office. Once we receive the certified copy of the (Q)DRO, we will serve it on the plan administrator and request implementation. We will send you and/ or your counsel in the case copies of the (Q)DRO, as well as the plan contact information so that you or your counsel can contact the plan directly from there. This completes our services.

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