FAQs for Parties in a Divorce
What is a (Q)DRO?
"QDRO" is a broad term used by many to mean any type of court order to specifically divide a retirement account or pension benefit. "QDRO" stands for Qualified Domestic Relations Order.
How long will this take?
If we have all the information we need to draft a QDRO, the drafting of the (Q)DRO itself will take approximately 10-14 business days. If we are not provided with all the information we need, the process can be much longer – sometimes as much as 6-8 weeks.
When can I expect to get my money?
It depends on the plan.
In general, 401(k)-type plans pay out as soon as administratively feasible after the court-entered (Q)DRO is approved by the Plan. Once the Plan has a copy of the court-entered (Q)DRO, it can take an average of 30-60 days for the Plan to approve the (Q)DRO.
Pension plans are different. If the Participant is not "in pay" status, the pension payments won't start until the Participant reaches a particular retirement age. If the Participant is already collecting his/her pension, payments to the Alternate Payee will typically begin the month after they Plan has approved the court-entered (Q)DRO.
After service of the court-entered (Q)DRO to the Plan, the Alternate Payee should contact the Plan directly for further information regarding implementation of the (Q)DRO. Please allow a few weeks for the Plan to process the request for implementation. If you do NOT hear from the Plan within 90 days from the date the court-entered (Q)DRO is sent to the Plan, you should contact the Plan directly. If our firm does not hear from either party within 90 days, we will assume that the (Q)DRO has received final approval from the Plan and has been implemented.
Who files the (Q)DRO with the Court?
If you are represented by the attorney, you or your attorney will be responsible for filing the Order with the appropriate court and submitting the court-executed QDRO to the plan administrator for final approval and administration. We will provide the appropriate contact information to assist you.
If you are not represented by an attorney and both parties will willing sign the (Q)DRO document, for an additional fee we can assist you with filing the (Q)DRO with the court and forwarding the court-entered (Q)DRO to the plan.
Who is the Participant?
The Participant is the person in whose name the retirement plan is titled.
Who is the Alternate Payee?
The alternate payee is any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.
I signed the (Q)DRO, but the other party hasn’t. What happens?
If the other party is non-responsive to requests for signature, you will have to seek legal assistance. We have several names of highly qualified and skilled attorneys we can provide you.
Why are you sending the (Q)DRO to the Plan for conditional pre-approval? And how long will it take?
We recommend obtaining preapprovals whenever possible in case the Plan Administrator requires any edits to the proposed (Q)DRO before filing it with the court. Not all plans will provide a pre-approval; we will let you know if it's not an option. Any proposed (Q)DRO we forward you will be ready for court entry in the event you do not want to wait for the plan to pre-approve the draft.
We find that most Plan Administrators are able to respond to our request for a pre-approval within 30 to 60 days. However there are some Plans that will require additional time.
The (Q)DRO was signed by everyone, now what?
The proposed (Q)DRP needs to be entered with the applicable court for the judge to sign. If you are not seeking assistance from your attorney or us to facilitate this, we recommend you contact the court for instructions, including how many copies you need to provide them in order to receive a signed copy.
What happens after the (Q)DRO has been entered by the Court?
Once the filed (Q)DRO is returned to you, your attorney or to us (if we are assisting you with this step of the process), a certified copy of the (Q)DRO must then be forwarded to the Plan Administrator. Instructions for where to forward a court-entered (Q)DRO will be included in the instructions provided to you in the (Q)DRO Packet we put together.
Who is the Plan Administrator?
The Plan Administrator is the individual or entity designated in the retirement plan documents (i.e., the Summary Plan Description) as the administrator of the plan. The Plan Administrator is responsible for determining whether a domestic relations order is a QDRO.
The Plan Administrator will follow certain established procedures in order to approve or reject a proposed (Q)DRO and will administer distributions to both the plan participant and alternate payee pursuant to the terms of an approved QDRO.
The Plan Administrator can reject the (Q)DRO and not honor the benefits awarded to the Alternate Payee until the Plan Administrator receives a (Q)DRO deemed to be acceptable in form and content.
All (Q)DROs are subject to the provisions of the retirement plan to which the Order will apply.
Does The QDRO Company pay me my money?
No. Any payments to an Alternate Payee are paid by the Plan Administrator.
Why should I get a QDRO now? Why can't I wait until my former spouse retires or until I need the money?
If you delay in obtaining a (Q)DRO, you may lose valuable rights and run the risk of forfeiting all of the benefits awarded to you in your divorce. Your rights may be lost if your former spouse does any of the following before your QDRO is submitted to the pension plan and accepted by the plan:
Quits or is fired
Withdraws funds from the Plan before retirement
Takes out a loan secured by the Plan account
Can I receive a cash distribution from the plan?
This depends on the type of plan involved. 401(k), 403(b) and 457 Plans (also known as Defined Contribution Plans), IRA's, ESOP's and Thrift Savings Plans usually permit cash distributions. Most pension plans (also known as Defined Benefit Plans) and military and federal civil service plans only permit monthly payments, not lump sums. A QDRO cannot override the terms of the plan itself which specify the form in which payments can be made.
Do IRAs require a QDRO?
Technically, an IRA is not a "qualified" retirement plan.
In most cases, the custodian only requires a certified copy of the Divorce Decree, which clearly identifies the IRA to be divided (i.e. name of the custodian and the account number), the award, and the identity of the parties. In many cases, this, along with transfer forms provided by the custodian is sufficient to divide the IRA. However, sometimes the custodian may request a QDRO.
In some cases, the custodian may request a letter of instruction, which is a letter that describes the assignment in more detail and is signed by both parties.
We recommend a call to the account representative or custodian to determine what is required.
Is it important to know the exact name of the plan that will be divided by QDRO?
Yes. Information is key in these cases. Many companies have multiple retirement plans. Unless your divorce decree is clear as to which plan is to be divided, questions can arise. Questions can cost you time & money. Be sure to acquire a plan statement or estimate for the plan(s) that is/are to be divided.
Can an alternate payee receive immediate access to the account after the QDRO is completed?
Never assume that an Alternate Payee can receive immediate access to funds. When it comes to defined contribution plans (i.e. 401(k) plans) distributions can take place relatively quick once the Plan Administrator approves the (Q)DRO. However, with some plans, distributions may only be available once a year during a specific period.
For most traditional defined benefit plans, payment may commence at the employee’s earliest retirement eligibility or later. If timing of a distribution is a concern, be sure to confirm the distribution timing & options before the deal is finalized.
If an alternate payee takes a distribution from an ERISA qualified plan, does he or she have to pay a penalty?
According to Section 72(t)(2)(C) of the Internal Revenue Code “(IRC”), the answer is “No.” Many believe that if an alternate payee elects a distribution from an ERISA qualified plan prior to age 59 ½, that he or she is subject to income tax and penalty. However, under Section 72(t)(2)(C) of the IRC, any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1) of the IRC), shall not be subject the additional 10% tax.
Please note that the alternate payee may be subject to regular income tax on the distribution.
You are encouraged to consult with your account and/or financial representative for further explanation prior to make a distribution.
What are Pre-Retirement Survivor Benefits?
The Qualified Pre-retirement Survivor Annuity is a benefit that is paid to an employee’s surviving spouse in the event of the employee’s death prior to retirement.
What is a Single Life Annuity?
A single life annuity benefit is paid in the form of monthly payments over the life of the participant. The benefit stops when the participant dies. There are no post-retirement death benefits paid when the participant dies. Under a single life annuity form the participant is not allowed to designate a beneficiary. This is the basic normal form of benefit for most defined benefit plans.
What is a Joint & Survivor Annuity?
All qualified defined benefit plans must provide a qualified joint and survivor annuity (QJSA) form of benefit payable to a surviving spouse of a married participant. The QJSA must be equal to at least 50% but not more than 100% of the amount payable to the participant during the couple’s joint lives. The QJSA must be the actuarial equivalent of a single life annuity based on the life expectancy of the participant. Actuarially equivalent means that the participant’s pension may be reduced to accommodate the potential future payment to the spouse. A reduction may be required to keep the plan in actuarial balance because it will be paid over two lives instead of one and the participant and beneficiary will be of different sexes and age. The reduction will persist through out the payment period unless the plan provides for a “pop-up benefit” (see below). The QJSA form of benefit may be waived prior to commencement of benefits. However, the participant’s spouse must consent in writing to the waiver. Failure to include language allowing the alternate spouse to elect a joint and survivor form of benefit in a QDRO acts as a waiver.
The QJSA is a benefit that may be assigned to an alternate payee independent of any of the other benefits provided by a plan. An alternate payee may be assigned all or a portion of the QJSA.
Is it possible for an Alternate Payee to lose his/her rights to the pension?
Yes. If the participant dies before the QDRO is finished and approved by the Plan, the alternate payee runs a substantial risk of losing his/her interest in the pension.