A QDRO Attorney Will Make Sure Your Retirement Plan is Fairly Divided and Distributed in Divorce

When spouses separate or divorce and divide their assets, one or more retirement plans are usually involved. Retirement benefits often represent a married couple’s largest or second largest asset, and for that reason divorce attorneys and spouses should pay careful attention to their treatment in the divorce.

Although divorces are decided under state law, retirement plans are governed by federal law if those plans are provided by a private employer. That federal law—the Employee Retirement Income Security Act of 1974, or ERISA—requires a special process for dividing retirement benefits. In particular, ERISA requires a Qualified Domestic Relations Order (“QDRO”)—a specific order that must be signed by a court or other agency and then accepted (“qualified”) by the retirement plan in order to be effective, and finalize the division. 

Retirement benefits provided to employees working for the federal or state government, or members of the military, also have special processes that must be followed if division is to be effective. We handle these types of divisions as well.

Who we help wITH OUR QDRO ATTORNEY SERVICES: 

• Ex-spouses that need a QDRO (or similar order) after their divorce is final;

• Family law attorneys handling a divorce who need to understand and negotiate retirement benefits, and ultimately need a QDRO or other order;

• Mediators or collaborative attorneys helping couples through divorce who are not familiar with the technical rules of ERISA or other laws governing retirement benefits; and

• Ex-spouses, parents, or guardians who are owed maintenance or child support and whose ex-spouse has retirement assets in his or her name somewhere in the country.

• Retirement assets may be significant, making them worthy of detailed attention during the divorce. This is your future income, and should be a primary concern for divorce attorneys and their clients.

• Focus on gathering retirement benefit information as early in the process as possible. Most people do not know much about their benefits, due to their complexity; obtaining specific information will empower you in deciding what to keep or give away.

• Family law attorneys may need assistance with the specialized area of retirement plans, because this is a specialized and complex area of the law.

• Every retirement plan has unique rules and features—request and analyze the retirement plan document or summary plan description. These documents should explain in detail the way your benefit is structured.

• Describe in your separation agreement, or stipulation, all aspects of the retirement benefit to be shared, or you may lose portions of the benefit.  

• Take these steps and draft the QDRO or other order before the divorce is final, if possible, while both parties are motivated to finalize the divorce. It will keep expenses down and result in less stress.

• If your divorce is final you should still take these steps. Don’t be penny wise and pound foolish: the future or current income to be gained by properly dividing your benefits usually far outweighs the cost and any frustration in obtaining the order, even after divorce.

Whether you are dividing a pension, 401(k), cash balance, or other type of retirement plan, you will have to understand and navigate the benefits and requirements of each in order to obtain your fair share as part of a divorce. How is this best accomplished?

Obtain the plan documents. After meeting some basic legal requirements, employers are free to design their retirement plans any way they see fit. That means that neither you nor your attorney will know what the plan offers if you do not review the terms of the plan. For example, does the employer’s 401(k) plan permit loans? Does that same plan have a tiered vesting schedule? If a pension is at stake, does it offer early retirement, a disability pension, or cash benefits? Reviewing the plan document will ensure that the benefits are divided fairly, and obtaining that information should be done as early in the divorce process as possible.

Document the benefits to the alternate payee (non-owner spouse). One important reason to gather retirement information during the divorce process is to ensure that the separation agreement or stipulation spells out all aspects of the benefits. It is not enough to state that the ex-spouse is entitled to a "marital share" in your agreement. Once the agreement is final, the QDRO will reflect the negotiated language. For example, if your agreement does not state that you are entitled to a marital share of a pension plan’s pre-retirement survivor benefits (automatically lost on divorce), most state court judges will say that the QDRO cannot include them. In that case, if your ex-spouse passes away before retirement, you will receive no benefits at all.

Start the QDRO process as early as possible. ERISA does not require a judgment of divorce to obtain a QDRO. The QDRO should be drafted after reviewing the plan document and before the divorce is final. After the divorce, there is no incentive for the plan participant spouse to cooperate with the process. That is typically a large obstacle to obtaining a QDRO after a final divorce, but there are also other, often significant, stumbling blocks to obtaining the QDRO if it is delayed beyond divorce.

Whether your divorce is in its early stages, or it was final one year ago or twenty years ago, you should begin the process of drafting and submitting a QDRO to the retirement plan as soon as you realize you need one, otherwise some or all of your share of the benefits may be lost.

Draft the order and submit it to all parties and the retirement plan. It is very important to put the retirement plan on notice that the QDRO process is underway and there is an alternate payee entitled to a portion of the benefits. ERISA provides an 18-month hold period to protect the alternate payee’s share of the benefits from being distributed to the participant during the QDRO process, and most plans will place a hold on a plan that has an account balance (like a 401(k) plan) or, in the case of a pension that is in pay status, segregate the alternate payee’s share into a separate account awaiting final qualification of the order. Even if changes must be made to the order, putting the plan on notice will preserve the alternate payee’s benefits during negotiations, while changes are being made to the order, or while the parties await a judge’s signature on the order. In addition, getting the order “preapproved” by the plan saves time later, and avoids the situation where a court must sign a second, amended order that meets the plan’s approval.

Maintenance, Child Support, and Children's Health Care Benefits

What else can a QDRO do?  ERISA specifically provides that a QDRO may be used to collect ongoing or back-owed child support or spousal maintenance. Because of ERISA’s federal reach, a QDRO can be a very effective way to obtain child support or maintenance owed, regardless of where the ex-spouse lives. If you are owed court-ordered child support or maintenance payments, McKain Law, PLLC might be able to help you collect them with a QDRO.

In addition, your childrens’ health benefit coverage may be secured during divorce through a Qualified Medical Child Support Order (QMCSO), another aspect of ERISA. A QMCSO requires the health plan administrator to ensure that your children are enrolled in your ex-spouse's health plan, if the ex-spouse is required to provide that benefit in your separation or settlement agreement. This takes the responsibility of enrolling the children off of the parent, and puts it on the health plan, by court order.

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