FAQs about Qualified Domestic Relations Orders
Qualified domestic relations orders (QDROs) have been around for quite a few years, but few people have a working knowledge of how these documents work. A QDRO might seem of little importance when negotiated, but the long-term implications on an individual’s retirement finances can be significant.
You might want to talk to a Maryland tax attorney about the tax implications of a proposed QDRO when going through a family court matter like a divorce or legal separation that involves the distribution of one or more retirement plans. Here are some FAQs about Qualified Domestic Relations Orders.
What Does a Qualified Domestic Relations Order (QDRO) Do?
A QDRO is a legal document that allows divorcing individuals to distribute portions of their retirement accounts to people besides the plan participant who created and contributed to the account. Because federal law controls retirement accounts, a QDRO is a way for divorcing couples, for example, to allocate the marital portion of a spouse’s retirement account between the two spouses.
When Does a QDRO Get Written?
QDROs usually get written at the end of a divorce case. The court judgment will specify the terms of the property distribution, including the retirement accounts of the parties. The QDRO must align with those terms and address terms often not included in the marital settlement agreement or divorce order such as survivor benefits.
There are other situations, though, in which another entity can issue a QDRO. State courts issue QDROs in the context of divorce cases, but according to the United States Department of Labor, “any state agency or instrumentality with the authority to issue judgments, decrees, or orders, or to approve property settlement agreements, pursuant to state domestic relations law (including community property law)” can issue a QDRO.
What Is the Definition of a Domestic Relations Order?
You cannot have a qualified domestic relations order without an underlying domestic relations order. “Qualification” occurs by the pension plan administrator after a court enters a domestic relations order. At the risk of being confusing, the underlying domestic relations order itself can include the terms of the QDRO without the need for a separate document, but this decision is made by the plan administrator. If allowed by the plan administrator, it is prudent to have the QDRO pre-approved by the plan administrator before presenting to the court for approval or otherwise you will have to present the court with an amended QDRO for approval.
A domestic relations order is in a court ruling that concerns marital property rights, child support, or alimony payments intended to benefit a current or former spouse, or a child or another dependent of the retirement plan participant. The approval of a property settlement agreement can serve as a domestic relations order for purposes of a QDRO but a domestic relations order (DRO) is not “qualified” as a QDRO until approved by the pension plan administrator.
Does a QDRO Have to Be a Separate Document from the Divorce Decree or Family Court Judgment?
Not always, but generally preferred. The domestic relations order can contain the terms of the QDRO within the body of the judgment, decree, order, or settlement agreement, but the pension plan administrator will not “qualify” the order unless it meets the plan’s requirements.
What Information Has to Be in a QDRO?
The QDRO must contain all the information the retirement plan administrator needs to comply with the ordered distribution of the retirement account. The bare essentials of a QDRO include:
The identity of the plan participant (employee) and each alternate payee (former spouse or dependent) named in the domestic relations order. The QDRO also needs to reveal the last known mailing address of each of those individuals.
Because a person might participate in more than one retirement plan, the QDRO must identify each plan to which the QDRO applies.
The details of the ordered distribution to the alternate payee. For example, the order should specify how many payments need to be made to the alternate payee, the time period to which the QDRO applies, and how much the alternate payee is to receive from the retirement account. The amount to be distributed can be stated in terms of dollars, percentage, or some other method of determining the amount.
If a QDRO does not contain all the information the plan administrator needs, the QDRO could get rejected.
Can a Court Enter a QDRO In a Non-Divorce Situation?
Yes. Any domestic relations order that involves marital property rights or child support can be a QDRO, without being a part of a divorce proceeding. Sometimes, a probate court will issue an order after a plan participant dies. If such an order deals with retirement benefits that arise under state community property law, that order can serve as a QDRO.
Do You Have to Write a Separate QDRO Document for Each Retirement Plan Getting Distributed?
It depends upon the retirement plan. As long as the document has all the required information about each retirement plan, there is no limit to the number of retirement plans that can get distributed by a single QDRO. The terms of the distribution can vary among the multiple retirement accounts covered by the QDRO document. For example, a former spouse could receive 50 percent of one retirement account but only 10 percent of another account.
What Is the Role of the Administrator of the Retirement Account Subject to a QDRO?
For purposes of qualified domestic relations order law, the administrator of a retirement account or another employee benefit plan that gets distributed under a domestic relations order is the party designated as the administrator in the plan documents. The plan administrator has multiple functions, which can include:
Making the initial determination of whether a domestic relations order is a QDRO.
Following the procedures of the employee benefit plan for making that decision.
Providing notice to the plan participant and the alternate payee(s) the administrator received a domestic relations order.
Giving those parties a copy of the procedures the benefits plan uses to decide if the order in question qualifies.
Carrying out its fiduciary responsibilities prudently and in the interest of the participants and beneficiaries of the benefit plan.
Following the plan procedures for administering distributions pursuant to qualified orders.
An employee benefit plan might impose additional obligations and responsibilities on the plan administrator. The plan should include information on the identity of the plan administrator and how to contact them. Key considerations from the perspective of the plan administrator is whether the domestic relations order is sufficiently clear so such that the plan does not become involved later in a dispute regarding its interpretation, and whether the order provides benefits not included in the participant’s plan.
Will the Department of Labor Evaluate a QDRO and Issue an Opinion About Its Validity?
No. The Department of Labor does not issue opinions about QDROs because doing so would require the Department to determine factual matters, like interpreting specific retirement plans and applying provisions of plans to things like the participant’s actual retirement benefits.
Talk to a Maryland tax attorney if you have additional questions about Qualified Domestic Relations Orders.
