Qualified Domestic Relations Order (QDRO)
One of the most important aspects of divorce is the division of retirement accounts. Whether you are dividing a 401(k), IRA, federal or military retirement benefits, or state retirement benefits you will likely need a special court order to divide the asset tax free. Most of the time these orders are called a Qualified Domestic Relations Order (“QDRO”) but there are other similar orders used depending on the type of benefits. Our attorneys are skilled at doing these orders and our firm partners with nationally known attorney retirement attorney Ray Dietrich as well. To find out more about Raymond S. Dietrich, click here.
The drafting of a QDRO or other retirement order is considered the practice of law since it affects the legal rights of the parties. There is also more than one way to structure a QDRO, based on the laws of your state. This sometimes means that a particular issue must be lawyered. Because of that, your case will always be handled by a licensed attorney. You also want to make sure that the attorney you are hiring is thoroughly familiar with the retirement plan at issue. Our main goal is to secure all of your retirement benefits, in a timely manner, at a reasonable fee.
Here are some key terms to know about when dealing with retirement accounts:
Employment Retirement Income Security Act (ERISA): A federal law that sets the rules for health and retirement plans, including how to divide them between divorcing spouses.
Qualified Plan: A retirement account or plan subject to ERISA rules.
Non-Qualified Plan: A retirement account not subject to ERISA.
Qualified Domestic Relations Order (QDRO): A court order that divides a 401(k), 403(b) or other similar retirement plans between spouses upon divorce.
Domestic Relations Order (DRO): A court order used in some states to divide qualified or non-qualified plans in a divorce.
Court Order Acceptable for Processing (COAP): A court order that divides up a federal FERS or CSRS pension between spouses upon divorce.
Court Order Assigning Military Retired Pay: A court order that divides a military pension between spouses in a divorce.
Retirement Benefits Court Order (RBCO): A court order used to divide up a civilian or military Thrift Savings Plan between spouses in a divorce.
Approved Domestic Relations Order (ADRO): A court order used in Virginia to divide a pension of a state employee between spouses in a divorce.
Pension Allocation Orders: A court order used in Delaware to divide a pension of a state employee between spouses in a divorce.
Individual Retirement Account (IRA): A retirement account that is non-qualified and doesn’t require a QDRO, but usually requires forms or letters done at the same time or after your divorce.
Two big issues with retirement orders:
The timing of a QDRO or other retirement order is the most critical and misunderstood concept among family law attorneys. At divorce, retirement benefits, in connection with the marriage, are at risk. There are only two exceptions to this unforgiving rule, that typically do not apply. Therefore, and to avoid the risk of loss, we recommend entering the QDRO at the same as you get divorce. This means you need to have your retirement orders done before your divorce is final. Whether you hire us to do the entire divorce or just the retirement orders, we can ensure this critical timing issue is not a problem for you.
Nonconformity is another critical issue when assigning retirement benefits in divorce. A “nonconformity” occurs when the divorce order and the QDRO or retirement order conflict in their terms. That is, the retirement order or QDRO attempts to award a benefit or condition that the divorce order failed to award. In common law states such as Virginia and Maryland, that nonconformity is usually fatal to the former spouse seeking the benefits. Fortunately, nonconformity issues can be eliminated by simply entering the retirement order at the same time with the divorce order. Either way, you need the skills of an experienced and competent attorney to make sure you get divorced and you get your fair share of retirement benefits.
Dividing an IRA is different than a qualified plan like a 401(k) or pension:
For most all IRA’s whether traditional or Roth, you don’t need a QDRO or retirement order. But you still want to divide these assets between spouses at the same time as your divorce. You can also divide your IRA tax free like a qualified plan if you have the necessary language in your divorce agreement and forms completed. Sometimes a letter from the IRA’s owner is enough to divide the account between spouses. Once the account is divided, the recipient spouse has a new IRA with their share of the original IRA funds as their separate property. Keep in mind that any distributions from an IRA that happen after division can be taxable to the owner.
Whether you need your entire divorce handled or you or your existing attorney are looking for assistance with a QDRO or retirement order, give us a call and see how we can help.