A retirement account can be one of the largest and most important assets in a divorce. Let’s explore how a retirement account is divided and transferred to a former spouse.
How are retirement accounts divided in a divorce?
Retirement plans, excluding IRAs, are generally divided using a Qualified Domestic Relations Order or QDRO for short. Generally, a divorce decree or settlement agreement is not sufficient to be considered a QDRO. A QDRO is a Court order signed by the Judge that describes what plan is being divided and how, along with many other standard provisions required by law and the plan administrator.
Who are the parties involved?
The “participant” is the person who owns the account. The “alternate payee” is the former spouse who is receiving funds from the participant’s account.
What are the issues to consider when reviewing a QDRO?
- What type of plan are you working with? A defined contribution plan is generally a funds-based plan, like 401(k). A defined benefit plan is generally a benefits-based plan, like a pension. Both types of plans, if eligible, can be divided in a divorce by a QDRO. However, the orders used to divide the plan and the content of the orders are very different.
- Can the plan be divided? Most retirement plans can be divided, but a few cannot be divided.
- What is the division date? The plan administrator needs to know on what date the plan is being divided. This could be the date of filing the divorce, the date the divorce was granted, or another date. In any event, a specific date must be listed.
- Did you account for gains and losses? Gains and losses account for the market fluctuation from the date of division and the date the funds are actually transferred to the alternate payee. The alternate payee will either receive a fixed sum or a sum amount including gains or losses. Either way, it needs to be described in the QDRO.
- Did you provide for loan balances? If there is a loan on the account, the loan balance of the loan must be accounted for in the QDRO. The loan is considered an asset of the account. If the loan is included, the amount paid to the alternate payee will generally be higher. If the loan is excluded, the amount paid to the alternate payee will generally be lower.
- Who will pay the fees? Oftentimes, the plan administrator assesses a fee to review and administer the QDRO. The QDRO must describe who will pay the fees, either the participant, alternate payee, or both.
What does the QDRO process look like in our office?
An attorney will draft the QDRO, and then send it to you for review.
- Once you review and confirm the QDRO is accurate, we will send the QDRO to opposing counsel to do the same.
- After everyone agrees on the draft, we will circulate the QDRO for signature and then file it with the Court.
- The Judge will sign the QDRO and then we will obtain a certified copy of the QDRO signed by the Judge to send to the plan administrators for review and determination.
- The plan administrator may take up to 60 days to review and implement the QDRO.
The QDRO process takes time, often several months, but we do our best to move through it quickly and to keep you updated with each step. For more information regarding a QDRO or divorce proceedings, contact us with your questions.