Dividing property during divorce is tedious and stressful. While some couples do maintain an amicable relationship throughout the process, oftentimes animosity, hurt, and disappointment muddy the waters. However, despite heavy emotions, couples must approach property division educated about property classifications and potential legal issues. For example, many couples often overlook the proceeds of retirement plans when initially considering their property. Therefore, divorcing couples must educate themselves about qualified domestic relations orders (QDRO) to ensure they are appropriately dividing their retirement savings.
What is a Qualified Domestic Relations Order (QDRO)?
Retirement benefits can hold a significant amount of value, so it’s important to divide them accurately. By filing a qualified domestic relations order (QDRO), a spouse seeks to secure a portion of the proceeds of a non-government based retirement benefit plan held by the other spouse. In other words, a QDRO allows a spouse (alternate payee) to receive income from any retirement benefits accrued (the plan) by their spouse (the participant) during the course of their marriage. More specifically, filing a QDRO orders the party that administers the payments from the plan, typically the employer, to allocate a portion to the alternate payee.
Legal Guidelines & Restrictions
The Employee Retirement Income Security Act (ERISA) governs QDROs by protecting employee retirement benefits. Under ERISA, barring certain exceptions, retirement benefits are inalienable. In other words, ERISA ensures outside parties cannot forcibly transfer retirement benefits away from the participant. However, ERISA makes an exception for QDROs. Thus, an appropriately filed and approved QDRO reduces ERISA protections. Now, the alternate payee spouse can seek payments from the retirement benefit.
Note that an alternate payee must file a QDRO with a qualifying government agency – typically the state court. QDROs that are not approved by the appropriate agency are not enforceable under the provisions of ERISA. As a result, any spousal agreement to split or divide retirement plans that has not been approved by the appropriate government agency will not be enforceable.
Finally, remember that only private companies’ benefits are eligible for transfer with QDROs. On the other hand, similar but separate orders called domestic relations orders control government-based retirement benefits. Therefore, if the government employs the participant, the alternate payee must file a domestic relations order in place of QDRO.
How Do I File a QDRO?
The process of filing a QDRO is complex. While the paperwork may seem straightforward upon first glance, the laws concerning QDROs are intricate. Plus, regulations can shift depending on the type of retirement benefit you are dealing with. Furthermore, failure to enter information correctly may result in an unenforceable agreement. Therefore, it is important to identify each spouse’s type of retirement plan and the accompanying paperwork.