Having issues with your QDRO?
Were you awarded your ex-husband’s retirement plan or pension plan? If so, that is great. However, being awarded the plan is the first step. The next step is working through the process of claiming these awarded assets and placing them in your name.
A Qualified Domestic Relations Order (or QDRO, pronounced “qua-dro”), is a court order entered as part of a property division in a divorce which divides a retirement plan or a pension plan by recognizing the alternate payees (you, the non-employee spouses) portion of the awarded assets.
QDROs apply only to employee benefit or pension plans subject to the Employee Retirement Income Security Act (ERISA), the American federal law governing private sector pensions. Domestic Relations Orders or DRO’s divide military retirement pay and Federal civil service retirement plans. A QDRO or DRO may provide for marital or community property division between the plan participant (the employee or former employee) and the alternate payee (the spouse of the employee or former employee). IRA’s, ROTH IRA’s and SEP IRA’s are not subject to ERISA and therefore are not divided typically with a QDRO but rather paperwork from the issuing company.
There are several steps in completing the QDRO/DRO process. The process goes as such:
- Complete mediation or determine what portion of the asset you are awarded by another route (court, joint agreement, arbitration, or mediated settlement agreement)
- Hire a QDRO/DRO specialist or coordinate with your attorney on who is going to draft the QDRO/DRO and who will pay for it. They usually cost $500 – $1,500.
- Request the QDRO/DRO be drafted and sent to the issuing company for pre-approval. This takes approximately 30 days. During this time, your attorney will be working on your final divorce decree.
- Once pre-approval is completed and it is approved, the QDRO/DRO is ready to be signed by you, your spouse, each attorney, and the court. The QDRO/DRO is, ideally, turned in with your final divorce decree at or around the time of the divorce finalization in court.
- Once the QDRO/DRO is signed by all parties, it is ready to be picked up and sent to the company. At this point the timeline is now approximately 30 days until you receive a letter from the company advising you they have received your QDRO/DRO and it is under review. Since communication from the issuing company will be in writing, it is important to confirm your correct address is on file with the company.
- You will receive another letter in approximately 30 days after the first letter with options for receiving your funds – either taking them in cash (and paying tax on the amount you take in cash) or rolling some or all the assets into an IRA or other qualified plan for yourself on a tax-free basis. You can typically choose to take a portion of the asset in cash and a portion of the asset can be moved into an IRA or other qualified plan under your name.
- If you are receiving a pension plan or other deferred compensation plan it is important to communicate with the issuing entity to make sure the QDRO/DRO process has been completed and is property executed. It could be years before you take receipt of a defined benefit plan assets and you will want to make sure it is completed properly now while your attorney is still involved.