Understanding QDROs: Dividing Retirement Plans in Divorce

In short, Qualified Domestic Relations Orders (QDRO’s) are often used in a divorce proceeding to serve two functions:

– divide retirement benefits earned during marriage and/or a registered domestic partnership; and
– allow payment of child or spousal support from an employee’s retirement benefits.

What is a QDRO?

A QDRO, as stated above, is a Qualified Domestic Relations Order. To be deemed “Qualified”, the domestic relations order must recognize the right of a non employee spouse to receive all or a portion of the benefits payable to the employee spouse. QDRO’s must be very specific, including (among other things)

– the name and mailing address of each ‘alternate payee’ (the spouse who was not the employee that earned retirement benefits through her/his employer);
– the amount or percentage of the benefits that will be paid to the alternate payee (or a formula detailing how the amount will be determined); and
– the number of payments that will be provided or a time period to which the order applies.

A QDRO may NOT provide that the non employee spouse receive a benefit not otherwise provided by the retirement plan.

Why use a QDRO?

QDRO’s must be used to divide all ERISA governed plans. A term in a Divorce Judgment dividing retirement interests between spouses is not effective to protect either spouse’s interest in a retirement interest alone. Rather, an order must meet the legal requirements or the plan will reject it. This can have negative ramifications for both parties. For example, an employee spouse may not be able to receive retirement benefits at retirement age if the retirement plan was ‘joined’ to the divorce action but no QDRO was ever prepared. A non employee spouse could lose his/her interest in the retirement plan by failing to complete the QDRO if the employee spouse passes away before a QDRO has been entered or retires without notifying the plan of a divorce agreement or order that assigns a portion of the benefits to her/his former spouse.

What if my spouse won’t sign the QDRO?

One way that an employee spouse can be compelled to sign a QDRO is to ask the court to condition termination of marital status on the QDRO being entered. Under the Family Code, a court does have the authority to impose a conditions prior to granting a divorce — including entry of a temporary or provisional QDRO.

If there is an agreement or court order that a QDRO be entered, but one spouse refuses to sign a lawfully prepared QDRO, a party can petition the court to have the QDRO be entered without the signature of the noncompliant spouse.

But how do QDRO’s work?

After a plan determines that an order meets the requirements of a QDRO, the former spouse can expect the plan (not the ex spouse) to directly pay his or share of the benefits. So for example, if the plan is a pension, each party will receive their share directly from the plan without needing to go through the other. If the plan is a 401k, the community and separate property shares will be segregated with each spouse having their own retirement accounts. Each recipient is taxed only on the amount she or he receives.

QDRO’s should not be prepared by anyone other than an expert trained in marital property valuation and division. In some cases, QDRO’s can be even more complicated than discussed in the article. For example, sometimes prior to the preparation of a QDRO or division of a retirement plan, community and separate property interests may need to be valued or traced. While not all issues in a divorce require a QDRO specialist or lawyer, this is one issue that must be paid close attention to.

Please note that this blog is meant for informational purposes only and does not constitute legal advice. Reading this blog does not create an attorney-client relationship with Levine Family Law Group. This blog is written from the perspective of existing California law and all attempts are made to be accurate and current on all legal developments. However, please do not make decisions that will affect your future based on things you’ve read on our website. Instead, consult with a Certified Family Law Specialist – It doesn’t have to be us, but be sure to seek out sound legal advice that pertains specifically to the facts of your case.