QDRO: How to Say It and Why You Might Need It

What is a QDRO?

When couples get divorced, it sometimes comes as a surprise that retirement savings plans and the money placed in them during the marriage are considered marital assets and therefore are subject to division. When it comes to retirement assets like certain pensions, 401(k) or 403(b) plans, (known as “qualified retirement plans,”) your attorney may discuss the need for a  “Qua-DRO” during your divorce case. This is the colloquial term for a Qualified Domestic Relations Order (QDRO). You will need this legal document to transfer assets held within these ERISA-qualified retirement plans from the plan participant to the recipient spouse without triggering a current tax liability for the plan participant.

What is ERISA?

The Employment Retirement Income Security Act of 1974, or ERISA, is a federal law that was created to protect individuals who participate in private retirement savings and health insurance plans. The law creates very specific rules for qualified retirement plans. This is why, in order to divide one of these assets, a QDRO must be drafted according to federal law as laid out in ERISA, also keeping in mind any specific form preferences stated by the plan administrator. When a QDRO is entered as part of a divorce judgment, the part of a retirement savings plan that has been allocated to the recipient (soon-to-be ex-) spouse of the plan participant will be disbursed in the future, and the recipient ex-spouse will be solely responsible for paying any taxes owed on the disbursement.

Do I need a QDRO?

Having a 401(k) plan does not automatically mean you will need a QDRO in divorce. Your  Marital Settlement Agreement will detail the division of your marital estate and how many, if any, QDROs will be necessary to ensure that each spouse receives a portion (usually 50%) of the value of the marital estate accumulated during the marriage. For example, if one spouse has a 401(k) plan at work valued at $340,000 and the couple own a home with $340,000 in equity, she may negotiate to keep her 401(k) plan whole while leaving the marital home entirely to the other spouse. This is something your attorney may call an “off-set” and is used to avoid the expense and time it may take to complete a QDRO.

How do I get a QDRO?

If your MSA will include one or more QDROs, you and your former spouse have options in how to have the paperwork drafted and how to share the expense of fees incurred. Some family law attorneys can write QDROs; others will coordinate with another attorney or professional who specializes in writing QDROs to complete this work. Our firm has a financial analyst and MBA on-staff who has experience writing QDROs, making the process seamless and efficient for our clients.

Whose responsibility is it to get the QDRO?

While generally the spouse of the plan participant will need to ensure that a QDRO is entered when needed, this is something that can be a point of negotiation between parties. There is a not a legal requirement stating who must ensure a QDRO is created and entered.

How much is it going to cost me to get a QDRO?

In general, when an experienced professional assists you in completing your needed QDRO(s), you can count on either a flat fee of up to more than a thousand dollars, or the work may simply be billed at your attorney’s normal hourly rate. When working with a firm who can complete QDROs in-house, as O. Long Law does, you can be sure that the process will be as efficient as possible, thus taking the least amount of time and money.