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What is a QDRO?
What is a QDRO?
Federal Law requires a QDRO to be in place for certain retirement plans to be divided. No matter how amicable the split, the effort of going through and fairly splitting assets in a divorce can be a veritable minefield. So much so that people often forget about things like retirement assets and end up paying the price in penalties and taxes later on.

For many people, retirement accounts will be the largest assets to be divided, and it's vital to understand how this kind of financial apportioning works.

In all cases, it's best to make sure you have the right information at hand, and to ensure that you are getting the best advice for your situation. We've created a guide to highlight areas for to consider when dividing your retirement plan(s) – whether a 401(k), pension plan, or other defined benefit or defined contribution account.

What Is A QDRO?

A QDRO (or “Qualified Domestic Relations Order”) is a type of court order – typically entered in a divorce action – that is a federal requirement to divide certain kinds of plans. They are used to help divide 401(K)s, pension plans, as well as a variety of other types of retirement accounts covered by the federal Employees Retirement Income Security Act, and sometimes even Individual Retirement Accounts (or “IRAs”. If a retirement plan is covered by the Employee Retirement Income Security Act (ERISA), then a QDRO is the only legal way to transfer your share of the fund without the risk of incurring significant taxes and penalties. However, it is important to discuss how you plan to access those funds with a financial advisor or accountant before you do so in order to ensure that you are not accidentally creating a significant tax bill.

According to a 2016 American Academy of Matrimonial Lawyers survey, dividing 401(k)s and similar types of accounts have been ranked as the most contentious item for 62 percent of divorces. For example, one party may suggest a trade in negotiations: trading a house or car in lieu of the other party getting a share in the retirement account. In this case, a QDRO may no longer be needed, but there may be a significant difference in the “cash” value of the car or house and the “pre-tax” value of the retirement account. It is advisable to consult with both an attorney and a financial advisor so that you have expert advice for valuing the assets to be split in your divorce.

When exploring which portion of the benefits are eligible for division, the court will look at the contributions made to the retirement fund throughout the course of the marriage. Typically, the dates will run from the date of the marriage to the date of your separation, or date of divorce. However, this is not uniform across the country – or even within individual states – so it's important to get accurate advice from an experienced attorney in your jurisdiction.

What does a QDRO Do?

If you withdraw money from your retirement account before you are 59 ½ years old, federal law imposes a 10 percent penalty. There are certain exceptions to this, and one such exception is when a transfer is made during divorce proceedings pursuant to a QDRO.

A QDRO provides protection you when money has to be transferred from your retirement account to your ex-spouse. Not only that, but a QDRO can also provide for survivor benefits should the Participant pass away (in the case of a pension plan). However, if the Participant dies before a QDRO is in place, you may lose any right to your portion of the retirement assets.

As such, timing is critical and it's important to complete your QDRO as quickly as possible following your divorce.

Get Your Information

If your split is an amicable one, you may find that your former spouse can provide you with all of the information about their retirement assets. However, as a spouse, you do have the legal right to get information about the retirement plan of your former partner. In order to get hold of this, you should contact your attorney or the administrator of the plan to request the necessary information.

It's good to know the description of the plan (known as a “Summary Plan Description”), the benefit statements, and any other necessary associated documents. Many plans will also provide a sample copy of the plan's “Model QDRO”. No two plans are identical, but knowing the format that the plan prefers can make life easier down the line.

You may find that your former spouse or the administrator of your spouse's plan are less than forthcoming about the information you need. If you're having difficulties finding the contact details for your ex-spouse's plan provider, the FreeERISA website will help you track down the most recently filed Form 5500, as well as all of the details for who it is you need to talk with. You can also speak with your attorney about your options to help gather the necessary information.

How Is a QDRO Prepared?

Typically, you'll find that the judge is the one to decide whether or not you're to be awarded any portion of your former spouse's retirement assets, or it will be apportioned via settlement. SimpleQDRO can then draft the QDRO to be forwarded to the judge for signature.

The QDRO will then be submitted directly to the plan's administrator for review and qualification. The order won't be “qualified” until it has been accepted by the plan administrator. Once accepted, the plan administrator will divide the account at issue into two separate accounts: one in your name, and one in the name of your ex-spouse. The administrator will then provide notices to all interested parties, detailing any available options for rollovers, disbursements, beneficiary elections, etc.

The Takeaway

The best way to ensure that the process is as effortless as possible is to gather all of the information that you need as soon in the divorce process as possible. Initiating the QDRO process during early days of the divorce and/or during settlement negotiations means that the court is likely to be able to finalize the divorce and sign off on the QDRO at very much the same time.
Do I Really Need a QDRO?
Do I Really Need a QDRO?
After months and possibly even years of tense negotiations or emotionally and financially draining litigation, you have your divorce Decree in hand. You are divorced. But is your divorce really FINISHED? If your divorce Decree includes a transfer of retirement accounts, then answer is probably “No.” You are not done – yet.

You're likely thinking: “Wait! What do you mean I'm not done?!”

When dividing retirement accounts, you will almost certainly need a Qualified Domestic Relations Order to complete the transfer of retirement assets. There are some exceptions to this requirement, but even those exceptions typically require a similar order to permit the transfer. But why?

The most common retirement accounts, such as 401(k) and private pension plans, are governed by the Employees Retirement Income Security Act of 1974 (more commonly referred to as “ERISA”). This law restricts your ability to access or transfer those retirement accounts – except under very specific circumstances. One of the exceptions is when the transfer of assets is pursuant to an award of marital property rights or spousal support in an action for divorce. But even then, a special type of order must be entered by the court and submitted to the Plan. ERISA refers to this type of order as a “Qualified Domestic Relations Order” – or “QDRO”.

A QDRO is an order that contains specific language necessary to complete the division of the retirement account(s) in question, while complying with ERISA. Without a QDRO, the Plan Administrator will almost certainly deny any request to transfer funds – even if you provide a copy of your divorce decree. Occasionally, a Plan Administrator may transfer funds without a QDRO in place – but BEWARE – if that happens, one of the parties is potentially in store for a very big tax bill. Other retirement plans, such as federal government retirement plans, military retirement plans, railroad retirement, as well as some state and local government plans may not be subject to ERISA specifically, but will require a similar (and very specific) retirement division order.

So, do you really need a QDRO? If you have to divide retirement accounts as part of your divorce decree, then the answer is almost certainly, “YES”. At SimpleQDRO, we make that process simple: you provide us with the necessary information and we provide the QDRO (or equivalent order) for your particular plan, along with step-by-step instructions for getting your QDRO approved by the Plan and executed by the court. In the unlikely event that your QDRO is not approved, SimpleQDRO will make any necessary revisions at no cost to you until the QDRO is accepted. We cover all 50 states and provide all of this for only $399.00. No hidden fees. No gimmicks.

If you have questions, or would like to get started, visit us at SimpleQDRO.com or feel free to contact us at
[email protected]. We want to help make this process as simple as possible.
Your QDRO is Ready - Now What!?
Your QDRO is Ready - Now What!?
When you're going through a divorce, a retirement fund is a significant marital asset. A qualified domestic relations order (QDRO) grants a person a right to a portion of the retirement benefits of a former spouse.

It's easy to overlook a QDRO in the midst of all the other considerations of a divorce proceeding, but it's vital to make sure you fairly divide all assets – including future retirement funds.

If you were wise enough to get your QDRO drafted during your divorce process, congratulations! You're one step ahead of many others. However, there are still some steps to take to get your order processed and executed by the court.

Here's what you need to do.

1. Print the Document

You'll want physical copies of both the QDRO and the QDRO addendum. Once you print them, you'll need to fill out some additional information, as well.

When you look at the documentation, you'll see you need information for the “participant” and the “alternate payee.”

The participant is the person who earned the retirement benefit, and the person designated to receive part of the benefit is the alternate payee. With this in mind, fill in the social security number and date of birth for each party.

2. Send the QDRO and Addendum to the Plan Administrator

A qualified domestic relations order cannot go into effect until it's approved by the retirement plan. That's when it truly becomes “qualified.”

To get the process going, you'll send the documents to the plan administrator address that is provided. You'll also need to create a brief cover letter asking the administrator to review the proposed order for pre-approval.

The review process by the retirement plan staff will take about 30 – 45 days, so be patient. However, if you haven't received any correspondence from the plan administrator within 30 days, be sure to reach out and make sure they got the documents.

3. Get Additional Signatures

Generally a plan administrator will accept a well-written QDRO. In the unlikely even that it's rejected, you'll want to reach out to SimpleQDRO right away for assistance.

Any administrator that rejects a QDRO has to provide a clear explanation for the rejection, including information on what needs to be done to make the order acceptable.

We'll look over the documentation and find out what the concerns are. Once the concerns are addressed, you can send the documentation back to the plan administrator for a new review.

However, most of the time the QDRO will be accepted and you can move on to getting the necessary signatures. Both parties and possibly the attorneys will need to sign the pre-approved order.

4. Submit the Signed, Pre-Approved Order to the Court

Once you've finished the steps above, it's time to put the qualified domestic relations order on file with the court. Submit the signed QDRO to the judge by mailing it to the court, along with a cover letter explaining that you'd like the order executed and filed.

You can get the address for submission by contacting the clerk of court. Be sure not to send the QDRO addendum to the court! They only want the pre-approved order, not additional paperwork.

Once the judge signs the qualified domestic relations order, you will want to get a court-certified copy so that you can finalize the order with the plan administrator.

5. Send the Court-Certified Copy to the Plan Administrator

Once you have the court-certified copy, you'll need to send it with the QDRO addendum back to the plan administrator.

Remember, the addendum does not get sent to the court, but it does get sent to the administrator with the court-certified order.

You'll need to include another brief letter asking the plan administrator to review the certified copy for qualification. This review process takes another 30 – 45 days.

6. Finalize the Transfer

When the administrator finishes the review, they will send you a notice of qualification. At that point, you have a fully qualified domestic relations order.

Congratulations!

However, keep in mind that the plan administrator may provide additional instructions that you will need to follow to finalize the transfer.

Can You File a QDRO After Your Divorce?

Sometimes you didn't think to get a QDRO during your original divorce process, but you realize that you should have done so.

The good news is that it's not too late! Even if it's been years since your divorce, you can still get a qualified domestic relations ordered drafted and approved to fairly divide the retirement assets. You'll need to follow the same process discussed above once the QDRO is prepared.

If your spouse is not communicating with you or is not willing to share details about the retirement plan, you can contact the plan administrator directly. That way you'll be able to find out what that specific plan requires for a QDRO, and you'll discover the financial details you need to draft the order.

You can ask for:

• The plan document and plan summary description

• The participant's benefit statements

• A copy of the plans model for a QDRO if there is one

• A copy of any other QDRO that might affect the participant's plan

You'll need legal assistance to get all of this information, of course. Your lawyer can draft the specific legal requests that the plan administrator will honor.

Once you have the documentation, you can work directly with SimpleQDRO to get your order drafted quickly and easily.

A former spouse is entitled to a portion of the retirement assets even if it has been many years since the divorce. A former can also gain benefits after the retirement disbursements have begun, although they will only apply to disbursements that come after the order is finalized with the plan.

Don't overlook one of the largest assets that's involved in a divorce. Whether you are in the process of a split or divorced many years ago, a QDRO can help you fairly divide retirement assets.
Why Addressing “Gains and Losses” is Critical
Why Addressing “Gains and Losses” is Critical
When drafting a QDRO to divide a Defined Contribution Plan – such as a 401(k) – one of the most significant issues that arises is whether or not market fluctuations (or “gains and losses”) will apply to the amount being transferred. Despite the impact gains and losses can have on the overall division of the account, we have found that parties and courts don’t always address this issue. If the marital settlement agreement or the divorce decree do not address whether gains and losses apply, the amount being divided will almost certainly be subject to the default terms of the retirement plan at issue – regardless of whether it reflects the intent of the parties. As you can imagine, failing to address the issue can therefore have a profound effect on the amount being divided.

Assume, for example, that your divorce decree provides that the Alternate Payee will receive 50% of the Participant’s interest in the ABC Corp. 401(k) Plan as of February 19, 2020. On that date, the total value of the plan was $100,000. In our scenario, the QDRO was submitted to the Plan Administrator for processing on March 23, 2020. Due to the onset of the COVID-19 pandemic, on March 23, 2020, the Dow Jones Industrial Average had fallen approximately 37% from February 19, 2020, and the total account balance had dropped to $63,000. Does the Alternate Payee receive 50% of the Participant’s account value as of February 19, 2020 ($50,000)? Or, does the Alternate Payee receive 50% of the value of the account on the date that it was actually divided ($31,500)?

Consider the reverse scenario, where our hypothetical stock market INCREASED by 37% to $137,000. Does the Alternate Payee still receive 50% of the Participant’s account value as of February 19, 2020 ($50,000)? Or, does the Alternate Payee receive 50% of the value of the account on the date that it was actually divided ($68,500)?

Many Defined Contribution Plans adhere to a “default interpretation” regarding the application of gains and losses when processing QDROs. If your marital settlement agreement or divorce decree do not clearly state your intent with respect to gains and losses, you will likely be subject to the default interpretation – for better or for worse. In most cases, the Plan Administrator interprets gains and losses as applying, but in some cases, the default interpretation is not to apply gains and losses. To discover the plan’s rules regarding the default interpretation about gains and losses, contact the Plan Administrator.

As you can see, it is critical to understand the terms of the plan you are trying to divide and to clearly state whether gains and losses will apply in either the marital settlement agreement or the divorce decree.
How fast can I get my money?
How fast can I get my money?
When going to through the QDRO process, one of the first questions our customers ask is “How fast can I get my money?”. It is a valid question that has a simple answer: it depends. On average (assuming everything is running smoothly), the QDRO process can be completed in 60-120 days. Sometimes, it can be completed in as little as 30 days, and sometimes, it can take MUCH longer. BUT, that doesn’t necessarily mean that you will have access to funds at that time. It may sound frustrating, but with the unique nature of each specific retirement plan, the answer really depends on a number of factors.

The most significant factor impacting how fast you can access your money is the type of plan being divided. For example, are you dividing a Defined Contribution Plan (such as a 401(k)), a Defined Benefit Plan (such as a Traditional Pension) or a Hybrid Plan (such as a Cash-Balance Pension Plan or a Money Purchase Pension Plan)?

If you are dividing a Defined Contribution Plan, then the likelihood is that you will be able to access your awarded funds once they are transferred into your name – unless the particular plan has additional restrictions. In the case of a Defined Contribution Plan (such as a 401(k)), and assuming there are no issues with the entry of the QDRO and processing by the Plan Administrator, you will likely have access to your awarded funds in 60-120 days.

If, on the other hand, you are dividing a Defined Benefit Plan, then you will likely not have access to any of the awarded benefits until either the time that the Participant attains the earliest retirement age under the plan (regardless of whether they continue to work), or the date that the Participant actually retires and begins receiving benefits. Which date applies will depend on the language of your QDRO and your divorce judgment.

A Hybrid Plan (such as a Cash-Balance Pension Plan) may allow you to take a lump sum distribution of your awarded benefits, but require you to wait until one of the triggering dates for a traditional pension.

The type of plan being divided can have a significant impact on how fast you can access your money. Understanding the rules of the plan you are trying to divide is critical to determining how long the process will take and when you will have money in hand. In many cases, we have encountered customers that are relying on the promise of immediate access to retirement funds, only to discover that they must wait until their spouse or former spouse actually retires – which might be several years in the future.

Contacting the Plan Administrator for the retirement plan being divided ahead of time will significantly help you understand the rules of the plan and set reasonable expectations for moving forward.
How Fast Can an Alternate Payee Access Retirement Assets Divided by QDRO?
How Fast Can an Alternate Payee Access Retirement Assets Divided by QDRO?
Divorce is a complex and emotional process, often requiring the division of shared assets, including retirement savings. A Qualified Domestic Relations Order (QDRO) is a critical legal instrument that enables the equitable distribution of retirement plan assets between divorcing spouses. However, one common question that arises in the context of QDROs is: how fast can an Alternate Payee access retirement assets divided by a QDRO after it has been filed? In this article, we'll delve into the process and timelines involved.

Understanding QDROs

A Qualified Domestic Relations Order is a court order that divides a retirement plan, such as a 401(k) or a pension, between a plan Participant (or employee, usually one of the divorcing spouses) and an Alternate Payee (usually the other spouse). It's crucial to note that without a QDRO, the retirement Plan Administrator will not recognize an alternate payee's claim to the funds. Hence, it's a vital legal step in ensuring a distribution of the asset(s).

The QDRO Process

The speed at which an Alternate Payee can access funds after a QDRO has been prepared depends on several factors, including the complexity of the case and the efficiency of the legal process. Here's a general overview of the process after a QDRO has been drafted:

1. Court Approval: After drafting, the QDRO must be submitted to the appropriate court for approval. The court will review the document to ensure it complies with state laws and regulations. The court's approval can take anywhere from a few days to several months (if a hearing is required), depending on the caseload and efficiency of the local court system.

2. Plan Administrator Review: Once the court approves and enters the QDRO, it is sent to the retirement Plan Administrator for review. This step can also vary in duration, typically taking several weeks to several months, depending on the complexity of the plan and the administrator's workload.

3. Implementation: Once the Plan Administrator approves the QDRO, they will implement it by transferring the designated portion of the retirement account into the alternate payee's name or providing a distribution of funds (if allowed) as specified in the QDRO.

Timelines and Variables

The time it takes for an Alternate Payee to access funds after a QDRO has been filed can vary widely depending on several variables:

1. Plan Administrator Efficiency: The efficiency of the Plan Administrator plays a significant role. Some administrators process QDROs more quickly than others.

2. Plan Complexity and Plan Rules: The complexity of the retirement plan, including the types of investments and the plan's rules, can significantly influence the timeline. Under most pension plans, for example, even under the best of circumstances, an Alternate Payee may not be able to access funds until the Participant attains the allowable retirement age under the plan.

3. Legal Process: Although delays can occur during the court approval phase, the timeline for this phase is largely dependent on the caseload of the court.

4. Negotiations: In some cases, negotiations between the divorcing parties can affect the timeline. If there are disputes over the language of the QDRO, or benefits that may be available under the applicable plan that were not addressed by the parties initially, it may take longer to reach an agreement and finalize the QDRO.

Conclusion

The speed at which an Alternate Payee can access funds after a QDRO has been entered can vary significantly based on a number of factors. While some cases may move very swiftly, others may encounter significant delays due to the complexities of the legal process, the efficiency of the Plan Administrator, and the intricacies of the retirement plan itself.