The collection of child support arrearages, as well as spousal alimony or maintenance arrearages, can occur by seizing and partitioning the paying party's retirement account. A Qualified Domestic Relations Order (QDRO) is a court order which has been filed with the court and determined by the Retirement Plan Administrator to be acceptable or “qualified" under certain federal ERISA rules. A QDRO recognizes the existence of an alternate payee (i.e., legally separated spouse, former spouse, domestic partner, child and/or other dependent) who has the right to receive benefits that are or will be payable to a member. QDRO's are most commonly used in divorces to divide retirement assets. Essentially, the retirement account of one party is partitioned and a certain amount, or right to receive future payments, is set-off to the other party. The use of QDRO's to collect other domestic relations judgments is often overlooked. Pursuant to federal law a retirement plan can be used to provide child support and alimony payments through the use of a QDRO. In today's economy the use of QDRO's to collect child support or spousal maintenance/alimony payments is important. People are being laid off everyday and unemployment is high; however, individuals still may have some retirement assets or benefits from their former job. The retirement assets or benefits could be used to pay the debt owed. Care must be used when using a QDRO because of the tax issues involved. The person receiving the assets via QDRO may have a taxable event when they liquidate the assets they receive. Imagine you receive retirement assets of $10,000 to satisfy a $10,000 child support debt, but after tax you only realize $7,000. There are ways to deal with this issue, including having the amount you receive 'grossed-up' to account for tax you have to pay, or have the child named as the alternate payee. For more information regarding QDRO's see the Department of Labor FAQ's.
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