Do We Need a QDRO?
If your spouse has a retirement plan or pension and you are entitled to share in the distributions, you absolutely need a Qualified Domestic Relations Order (QDRO). In fact, a plan’s administrator is not permitted to distribute funds to anyone but the participant without a QDRO.
A Domestic Relations Order (DRO) is an order or judgment issued by a court directing or approving the distribution of all or part of a participant’s retirement plan to another payee. This payee can be an ex-spouse or a dependent. According to the IRS, an adult payee would also be required to cover part of the cost of the plan, while a minor would not. (The calculation is here.)
An order is considered “qualified” only after it has been approved by the plan’s administrator–i.e., it fulfills the particular plan’s criteria and procedures. A DRO judgment is generally submitted directly to the plan to be officially qualified. Distributions to the payee are made tax-free and penalty-free, even if the participant is below the age of distribution, so that the participant is not disadvantaged by the roll-over or distribution.
The language of a QDRO is very specific, so it’s best to work with an experienced lawyer and/or actuary to draw it up. The need for a QDRO can be avoided, even if your spouse (or you) have retirement or pension plans, through the negotiation process. Some other asset or assets can be accepted by a spouse in exchange for any portion of the retirement account, for instance, maintaining full ownership of the family home rather than selling and splitting the profit. If you can come to an out-of-court property settlement that stipulates how much, if any, of the pension or retirement account will be split, you can avoid the judge dividing your retirement accounts for you, as he or she sees fit. If at all possible, come to an equitable agreement before the end of the divorce process in order to retain a degree of control.
The QDRO process can take time, so don’t wait. Ideally, it should be completed in time to submit along with the rest of the divorce settlement. If you begin the process late, or even after the divorce, and your spouse remarries or dies, you may not get any benefits.
Government and military pensions follow different laws and are not covered by the QDRO laws. They are more difficult to split than plans from private employers, in which case, it is even more imperative to get the help of a divorce law expert.