A QDRO (pronounced “quadro”) is an abbreviation for a Qualified Domestic Relations Order, which is normally entered by a court following dissolution of marriage in order to divide the benefits under a retirement plan.
Why do I need a QDRO?
Federal law generally provides that your interest in your retirement plan cannot be assigned to someone else. Congress provided for an exception to that rule in certain cases, which allows a divorce court to enter a QDRO to allow an assignment of retirement plan benefits to a spouse, a former spouse, a child or other dependent of a participant in a retirement plan.
What is an “Alternate Payee?”
An alternate payee is the person receiving benefits under the QDRO, who is generally the spouse or former spouse of the retirement plan participant.
What does the QDRO provide?
The QDRO is written to carry out the terms of the court decree, based on either the agreement of the parties or the order of the court. It also must contain certain specific information required under the law. Generally, it will spell out:
- what benefits will go to the alternate payee
- when the alternate payee can receive the benefits
- what form the benefits will take (lump sum or annuity payments)
- what happens if the alternate payee dies before payments are completed
- what happens if the participant dies before payments are completed to the alternate payee
Who prepares the QDRO?
Generally the attorney for the alternate payee will prepare the QDRO, and it will then be reviewed by the attorney for the participant to make sure that it carries out the agreement of the parties or the court order. Sometimes the plan administrator will also review a draft QDRO.
How is the final QDRO approved by the plan?
After the attorneys for both parties approve the QDRO, the court signs it, and a certified copy is sent to the plan administrator. Sometimes the plan administrator then requests minor changes in the document to bring it into compliance with the terms of the plan. When the court certified copy is approved by the plan, the plan commits to carry out the terms of the QDRO, and notifies the participant and the alternate payee of the decision, and provides the alternate payee with information as to how and when to receive the benefits under the plan.
How am I taxed on my benefits under the QDRO?
Most retirement plan benefits are tax deferred benefits, and the alternate payee will generally pay taxes on the benefits as they receive them. However, many plans allow the alternate payee to put off receiving the benefits until retirement age, or to roll the benefits into an IRA and continue the tax deferral until normal retirement age.
Paule, Camazine & Blumenthal, P.C. has St. Louis family law attorneys with substantial experience in preparing, reviewing, and obtaining approval of QDROS.