Marriage and divorce are significant events that greatly impact your finances, especially your retirement plans. Therefore, it makes sense to ensure your property is organized during these events. A Qualified Domestic Relations Order or (QDRO) will help you accomplish these goals. This important document determines who receives specific assets after a divorce and can enforce child support payments, alimony, and distributions from certain retirement accounts.
A QDRO must contain the following:
Tax Treatment of These Plans
A QDRO payment is considered to be taxable income to the beneficiary spouse or child. However, it’s important to note this distribution can be nontaxable if it’s treated as a rollover. For example, a former spouse can receive a qualified plan distribution and roll it over into a tax-deferred account like an IRA without paying taxes. Unlike other tax-deferred accounts like 401(k)s, QDRO distributions are free from the dreaded 10% penalty. This applies if the distribution isn’t rolled over to another account. Therefore, a $100K distribution would be worth $10k more than a standard participant’s plan distribution.
QDROs might seem to fall more under divorce law, but it actually has to comply with many retirement plan regulations. For example, QDROs must be drafted with precision to comply with laws like ERISA and other laws unique to each particular plan. Therefore, most attorneys consult with a QDRO specialist to prepare this important document.
QDROs are complex documents making it imperative that it’s drafted correctly the first time. Besides fundamental information like the payor and payee’s addresses, it must include more important facts such as:
Also, it’s a common misconception that QDROs must be separate from important divorce documents like divorce decrees or property settlements. However, the affected parties have the choice to include this document in the divorce decree or have it separated.
Payment Timing
The timing of payments is very important with QDROs. An alternate payee would be assigned a unique timeline of payments or the same payment rights the participant would have had under the plan. Regardless, a QDRO wouldn’t permit a distribution earlier than the original participant’s retirement date. The retirement date is either:
Here at Brucker & Morra, we enjoy collaborating with your family lawyers on employee benefits that could be considered community property in divorce cases. We clarify the relationship between community property and employee benefits law. Some other ways we can help you with your QDRO needs include drafting or reviewing any judgments, marital settlements and of course, first draft QDROs by outside legal professionals.
We can ensure completely transparent benefit amounts and balances with your previous spouse. Transparency is vital to any legal proceeding especially QDROs. If your spouse isn’t truthful, it could cost you thousands of dollars and unwanted legal repercussions.
We also provide expert testimony to strengthen client holdings when it pertains to their employee benefits. It’s also crucial that we provide guidance to you and your other legal counsel regarding property as well as retirement benefit protection.
Like QDROs, pre and post nuptial agreements are crucial marriage documents. We can protect retirement plan benefits that were accumulated prior to and after the marriage. We can also help your outside legal counsel determine plan valuation for estate tax purposes, along with the determination of beneficiaries.
Marriage and divorce have a huge impact on your finances, specifically your retirement plans. QDROs are very specific documents that can help guide distribution and ownership percentages of a former spouse’s retirement plan.
Pension Lawyers is very-well versed with these laws and QDROS, allowing us to solve your most complex problems. Reach out to us for a free, no pressure consultation.
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