If you and your spouse are considering, or are in the process of divorce, and one or both of you has corporate or civil service benefits, or a 401(k) savings and/or pension plan, part of the division of these marital assets will involve the drafting of a QDRO, or Qualified Domestic Relations Order. It is important that you understand how this works.
QDROs are documents mandated by federal law under ERISA (Employee Retirement Income Security Act) which gives guidance on protecting the “alternate payee,” which is you, if you are the non-employee spouse.
QDROs are typically the last item to be created once the divorcing couple has a mediated settlement agreement. These documents can be tricky to draft and should be carefully developed by an expert and closely reviewed by you, your divorce attorney and your financial advisor for accuracy and consistency, before signing and submitting to the employing organization following the divorce.
Sometimes, your attorney or someone on his team will draft your QDRO, but it is usually outsourced to a specialty firm. Each QDRO must meet the requirements of the spouse’s employer. Make sure wording in the QDRO is consistent with any specifics you and your spouse outlined in your mediated settlement agreement, and/or divorce decree documents with regard to the division of financial assets in the above described plans.
ERISA requires that a plan provide to the divorcing couple and their attorneys, four documents useful in reviewing a QDRO. They are:
• The text of the plan
• Summary Plan Description
• The Plan’s Written QDRO Procedures
• Annual benefit statement
I often review my clients’ QDRO orders to ensure they are accurately written to all pertinent and required specifications of the employing organization. A minor error can be costly, or could delay the transfer of funds to the designated spouse’s IRA or other account, if not corrected before each spouse signs off.
Divorcing couples should focus on reviewing the Summary Plan Description which provides the most important features of the plan document in easier-to-understand language. It contains a comprehensive description of the rights and duties of beneficiaries and participants. Be sure to also read the section outlining “rules for QDROs, divorce and survivorship.”
The Plan’s Written QDRO Procedures document also is very important for guidance on the proper drafting of the document, along with a sample QDRO from the company. To secure a copy of the QDRO requirements and procedures, a phone call request to the employer’s Plan Administrator, typically in the Human Resources department, should suffice.
The Plan Procedures will include a complete checklist of plan requirements for approving a QDRO, and the steps necessary for expedience. If you are the “alternate payee,” these documents will be requested by your divorce attorney.
This article is intended to be a general guide or overview of QDROs. While not comprehensive, it provides valuable guidance in a very complicated and structured area of divorce.