“QDRO” (commonly pronounced “cue-droh” or “kwah-droh”) is an acronym that stands for Qualified Domestic Relations Order.
A QDRO will allow the plan administrator to divide the participant’s rights to a plan with an “alternate payee” and will allow the alternate payee to assume ownership of his or her portion of the plan as if he or she were the participant.
This allows divorcing parties to divide a retirement account without having to incur the usual taxes and penalties that come with prematurely cashing out a retirement asset.
A QDRO is something that is required by a plan administrator, not by a court. A divorce court decides how to divide a retirement asset by determining a specific percentage of the account or dollar amount each party is to receive. A QDRO is what actually accomplishes the court’s order for division.
Retirement plans have specific rules and regulations—and a court order cannot modify those terms. Therefore, just because two parties to a divorce agree that the Wife should receive 100 percent of the Husband’s pension doesn’t mean it is possible under the terms of the plan.
This is why it is very important to consult with an attorney regarding the division of retirement assets. There are nuances to their division and sometimes plan documents can be confusing. An attorney can help you figure out whether a QDRO is needed to divide your plan or whether there are alternatives.
Because QDRO’s are typically only needed to divide qualified benefits such as pensions, 401ks, and 403(b)s, they are not necessary to divide IRAs or Roth IRAs. IRAs can be transferred pursuant to the plan details but will not require a special court order. Consult with the plan administrator for their requirements.
The QDRO process usually happens after the divorce is finalized. The steps are generally as follows:
Any problems along the way will be handled by your attorney and the plan administrator in cooperation with the financial services firm and, possibly, the divorce court.
The QDRO process can take up to six months or more before the qualified plan will be officially and finally divided pursuant to the divorce judgment.
Both parties are responsible for complying with the judgment of divorce. However, the plan participant will usually have better access to information about the plan than the alternate payee. Therefore, if parties are unrepresented by attorneys, the plan participant will usually need to take the lead in starting the QDRO process. However, the alternate payee will also need to participate and to provide information when requested. It is important that both parties cooperate so that that process is not stalled.
If one or both parties have lawyers, the lawyers will initiate and oversee the QDRO process.
The cost of preparing a QDRO will vary based upon who drafts it. Generally, the cost of having the QDRO financially prepared will range from $600 to $800—a cost which will be split equally between the parties.
Failure to pay the QDRO fee will result in the QDRO remaining incomplete and unfiled. This can negatively impact both parties’ rights under the plan. If one party holds up the QDRO process by refusing to pay the QDRO fee, the court can hold that party in contempt.
Processing a QDRO will not result in a cash payout. Instead, it results merely in the transfer of an account interest to the alternate payee. At the end of the QDRO process, the participant will still have his or her pension (or 401k, etc.), but the value will be reduced by the share that is transferred to the alternate payee who will have his or her own pension (401k, etc.) under the same plan.
If a party wants to cash-out their interest in the plan after it is divided, they will have to do so pursuant to the plan terms and will be subject to any associated taxes or penalties.
No one. The purpose of a QDRO is to avoid negative tax implications or penalties for having to divide and account incidental to a divorce. A QDRO allows for a tax-free, penalty-free transfer between the parties. But, if one party wants to cash-out his or her account after it is divided, they will be subject to the usual and customary taxes and penalties and will be subject to all limitations or restrictions imposed by the plan.
Short answer: Probably not.
A QDRO is a court order. You have a constitutional right to represent yourself in court—this includes the right to prepare your own legal documents. However, QDROs are highly specialized and highly nuanced court orders. Even lawyers rarely draft them—instead choosing to hire qualified financial professionals who specialize in the preparation of QDROs.
So, while you technically can attempt to prepare your own QDRO, it is not recommended.
Short answer: Not really.
Because a QDRO is a court order, it is subject to enforcement or modification under the same rules as other civil court orders. But as a practical matter, once a QDRO has been approved and implemented by the plan administrator it cannot be undone.
If you would like to speak to an attorney about how to go about dividing or cashing out retirement assets as part of your divorce settlement, contact one of our attorneys for a 100% confidential consultation.
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