A retirement plan can be the largest asset in a marriage. Nonetheless, retirement plans are often forgotten or overlooked during divorce, in part because divorce is so complicated and in part because a divorce can occur years before retirement – and who’s thinking about retirement when it’s 10 or 20 years down the road? If they don’t have the right kind of court order, people going though divorce could neglect a significant portion of the marital assets and put themselves at risk of economic insecurity in retirement.
A qualified domestic relations order is a special court order that grants a person a right to a portion of the retirement benefits his or her former spouse has earned through participation in an employer-sponsored retirement plan. QDROs are typically prepared during divorce proceedings, though they can be filed years after divorce.
In a QDRO, the person who earned the benefit is called the “participant” and the person who is designated to receive a share of that benefit is called the “alternate payee.” QDROs can award benefits to the alternate payee while the participant is alive, as well as survivor benefits if the participant dies.
Note that there is an important distinction between a domestic relations order and a qualified domestic relations order. Any family law court can issue a domestic relations order, but a domestic relations order becomes qualified only once it is accepted by the plan.
Note also that “QDRO” is the term for domestic relations orders that have been accepted by a retirement plan sponsored by a private employer, such as a company or non-profit. Other types of plans may have a different term for this. For instance, retirement plans for federal government employees refer to these court orders, once accepted, as a COAP (Court Order Acceptable for Processing).
Federal law states that a retirement benefit can only be divided between former spouses if there is a QDRO. This means that a divorce decree issued by a state court may not be enough, even if the divorce decree clearly states that the retirement benefit should be divided. While it is sometimes possible that the divorce decree itself will meet the requirements for it to be treated as a QDRO, in many circumstances a retirement plan will require a QDRO that is a separate document from the divorce decree.
While it is technically possible to obtain a QDRO long after the divorce decree is issued, it is always better to obtain a QDRO and to file the QDRO with the plan as quickly as possible. If the participant retires after the divorce is final, and no QDRO has been filed with the plan, the plan will begin paying the benefit out to the participant. If a QDRO is issued after payments to the retiree have begun, the plan will honor the QDRO but only future payments will be affected.
Likewise, if the participant dies and no QDRO has been filed, the plan cannot reject it simply because the order was issued after the participant’s death. However the order must be consistent with the terms of the plan. It cannot require a payment type or amount not permitted by the plan.
It is also possible that the participant who earned the benefit will remarry after the divorce and later divorce that person as well, in which case that person may file his or her own QDRO with the plan. The second QDRO cannot be rejected solely because the plan administrator has received an earlier order from the first spouse. However, payments already made under the first order will not be affected by the issuance of the second order.
We’ve heard from many clients who believe they are entitled to a portion of a former spouse’s retirement benefit because it was addressed in the divorce decree. Unfortunately, we have to tell these clients that, unless the retirement plan has a qualified domestic relations order on file, they have no right to a benefit. Please also note that if a divorce decree is finalized but does not address the retirement benefit(s), the former spouse has no rights to the participant’s retirement benefits and cannot use that divorce decree to obtain a QDRO. After a divorce that does not address the retirement benefit at all, the only way to obtain a QDRO is to undertake the very difficult task of reopening the divorce, which will require a divorce attorney and can take years. For this reason, it is important to make sure that the retirement plan is addressed during your divorce.
If you are unable to find the plan’s contact information, use www.freeERISA.com to locate the most recent Form 5500 that the plan has filed. This form should contain the contact information for the plan administrator. Once you have the plan administrator’s contact information, contact them to ask for the following documents:
There are nearly 700,000 private retirement plans in the United States and each one has its own rules for what information must be included in a QDRO. However, there are basic elements that each qualified domestic relations order must contain. We’ve listed these requirements below. It is important to know that plans can require additional information, but not less. Note that a separate QDRO must be filed for each retirement plan.
All QDROs must include the following:
Contact a Pension Counseling and Information Project. While a counseling project may not be able to draft a QDRO for you, it can help you obtain the necessary documents. Retirement plans are required to provide information related to QDROs to all people who may be entitled to a benefit from a retirement plan, including divorcing spouses. If your area is not served by a pension counseling project, use PensionHelp America, an online service of the Pension Rights Center, to find a legal services office or nonprofit organization to assist you.
Submit it to the plan immediately! The plan should let you know within a reasonable amount of time whether it has accepted the QDRO. If the plan accepts the QDRO, you do not need to take any additional steps. If the plan rejects the QDRO, it must provide a clear explanation for the rejection, including information on what you need to do in order to improve the QDRO so that it is accepted by the plan.
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