What You Need To Know About QDROs
QDROs are orders allowing for an alternative payer to employer sponsored retirement plans.
A QDRO (Qualified Domestic Relation Order) is a critical part of a divorce if your ex-spouse has an employer sponsored retirement plan. Under the right circumstances, which often exist in Pennsylvania divorces, one spouse has the right to a portion of the other’s retirement plan. A QDRO is a domestic relations order (DRO) which allows one spouse to receive payments from the other spouse’s employee retirement plan after a divorce. The second spouse becomes an alternate payee under the retirement plan.
QDROs are Complicated and Must be Drafted Correctly
QDROs are an especially complex part of the divorce process, and if handled incorrectly can cause substantial financial losses to either the original holder or the alternate payee of an employee sponsored retirement plan. Due to the risks and potential for harm to our clients, our family law attorneys always work with an actuary to draft QDROs. This safeguard ensures a quality order and helps keep costs down for our divorce clients.
QDRO versus DRO
The difference between a QDRO and a DRO is that a family law court can issue a DRO (domestic relations order) but in order to be qualified, the document must meet the requirements of ERISA. (ERISA is the Employee Retirement Income Security Act.) If the form is completed improperly by an inexperienced attorney, the order will be rejected, and everyone will have to go back to court and try again. This substantially increases costs and causes delays for everyone involved in the divorce.
What are Common QDRO Errors?
Due to the complexity of QDROs it is very easy to make mistakes. Some of the common errors that we see include:
Failing to properly identify the type of retirement plan
There are various types of retirement benefit plans. As such, it is critical to make sure that the attorney understands the type of plan that is to be listed. If the wrong type of plan is entered in the QDRO, this can impact the financial bottom line for either spouse. It is important that the language in both the settlement agreement and the QDRO properly identify the type of plan. In certain cases, a plan cannot even be divided, and therefore seeking to use a QDRO is a waste of time and money. As a result, before the process of completing the proper documents even begins, the lawyer must make certain to understand all of the details of the plan.
Thinking all is complete after the judge signs off
A QDRO is just a DRO until it meets the proper ERISA requirements. That Q, which as noted stands for qualified, is critical to making sure that the document is properly completed, accepted, and finalized. Without this approval, the DRO is just a piece of paper and has no power to provide payment to the alternate payee.
Dealing with the specific plan and divorce correctly
All retirement plans and divorces have their own, unique aspects. As such, it is critical that the lawyer or actuary drafting the QDRO make sure they have all of the correct details. This includes:
- The proper name of the plan
- The cut-off date for the alternate payee
- Addressing gains and losses
- Properly handling multiple plans
Failing to manage these issues within the context of the plan(s) and the particulars of the divorce can lead to denial of the QDRO, or even worse, to negative financial consequences further down the line.
We Know QDROs
It is important to understand that a QDRO can be created even after a divorce is already complete. Failure of your attorney to check into retirement plans and manage them correctly during your divorce can add substantial expense after the fact. If your attorney does seek to complete a QDRO timely, or doesn’t know what they are doing, this can create substantial financial harm later on in your life. Make sure you work with divorce lawyers who understand QDROs and use actuaries to protect both your rights and your wallet. Reach out to Harrisburg area family law attorneys Alexis M. Miloszewski and Jessica E Smith, today, to learn how we can help you with your QDRO and your divorce.