A qualified domestic relations order, or QDRO for short, is a document often used in the context of splitting assets in a divorce to rollover a portion of one party’s retirement plan/benefit to the other party. QDROs are frequently utilized when pensions, 401ks and other retirement benefits have been classified as marital in nature and therefore up for distribution at the end of the marriage. The benefit of a QDRO is that it allows a tax-free transfer of the funds from one party to their new or soon-to-be ex-spouse. The receiving spouse would then be taxed as they withdraw the money as the tax laws provide. The exact nuances of how the plan/benefit is split and what options are available will vary based on the type of plan. For example, it may be that the party receiving a benefit as a result of a QDRO, often termed the alternate payee, cannot begin to do so until the initial participant in the plan begins to do so. The receiving party may or may not be able to designate an alternate successor if they die before the benefits begin to pay out. Or, the plan may provide the receiving party can only designate a survivor beneficiary that would be able to receive the balance of their portion of the benefit if they have started receiving the benefit before they die. The receiving party’s benefit may or may not be affected by the death of the initial participant or his/her early withdrawal penalty, if applicable.
It is always advisable to review the procedures for the specific plan you may need distributed to understand what their rules and policies are when it comes to splitting a participant’s benefits via QDRO in the context of a divorce. You will also likely benefit from having an attorney review the terms of the QDRO as well before signing off on it and submitting it to the plan. Finally, most plans have very specific requirements as far as how the language of the QDRO is to be worded in order for it to be accepted and processed. At a minimum, a QDRO should identify the parties, the plan at issue, and the amount going to the receiving party either as a lump sum or a percentage of the total benefit. It is wise to enlist the services of a company that routinely drafts QDROs to ensure the language is correct and all requirements are met.