A Qualified Domestic Relations Order (QDROs) is a court order that divides an individual’s retirement plans between themselves and their former spouse. The order is presented to the plan administrator and instructs how the plan should be divided between the member and the member’s spouse, often referred to a “alternate payee”. The QDRO is required by the plan administrator in order for it to deviate from the requirement that the member receive benefits from their retirement plan and instead to go an alternate payee subject to a QDRO.
When a divorce is finalized and approved by the Court, the Marital Settlement Agreement (MSA) will indicate how particular retirement plans should be divided, based on percentages with a domestic relations order. The MSA should state that the parties agree to contract with a financial firm to coordinate the division under the domestic relations order and share the cost of doing so. The parties will reach out to the financial firm which will then contact plan administrator about the domestic relations order with a proposed distribution. That financial firm will prepare a proposed QDRO for the plan administrator, parties and court to approve. Once the court approves the QDRO, the financial firm provides it to the plan administrator who then releases the funds pursuant to the order. Although this process is simplified into one paragraph, the process can take several months to finally be approved by the parties and for distribution to be finalized.
There are many important steps to complete a QDRO, including making sure that the financial firm has all the necessary information to communicate with plan administrators. Additionally, before a QDRO can be approved by the court, the plan administrator and the member, alternate payee, and their attorneys if any must carefully review the information to distribution is correct. There are strict statutory provisions as to what is required for QDRO to be compliant and approved by the court.