What Is A QDRO?
Before settling your divorce case, you must make sure that retirement benefits such as a pension, 401k, IRA, etc. are being properly addressed. After your divorce a QDRO (Qualified Domestic Relations Order), will have to be prepared for you to receive part of a spouse's retirement benefits.
Step 1: Gather InformationAs part of a divorce both parties must fully disclose the assets they have, including retirement assets. Before settling your case, make sure that your attorney has requested copies of pension and retirement account statements. Don't accept what your spouse says his/her pension or retirement account is worth, obtain statements that show you exactly what they have. In addition to a pension statement, your attorney should request a copy of the Summary Plan Description (SPD). The SPD provides important information on the pension plan rules and procedures for dividing a pension due to a divorce.
Step 2: Your Divorce Agreement Must Specifically Address The Division Of Retirement AssetsMost divorces end with a written agreement that states how custody, visitation and financial items are being addressed. As an attorney that prepares QDROs, I see many divorce agreements that do not properly address retirement assets. Often times a divorce agreement simply states that the retirement assets will be equally divided between the parties.
This general language is insufficient as it leaves out a lot of important details such as:
- As of what date are the retirement assets being divided?
- Are there any loans against the retirement benefit and if so how is that being addressed?
- What happens when one of the parties dies? Is the surviving spouse entitled to death benefits?
- What happens with any investment gains/losses to a retirement account that occur before the account is divided?
- Are any of the retirement funds premarital and how should that be addressed?
When dividing retirement benefits the details are important. Neglecting to address any of the above mentioned items could be a very costly mistake. The QDRO prepared after your divorce must follow what is stated in your divorce agreement. If your divorce agreement does not address the specific items referenced above than the QDRO cannot state them either. A QDRO cannot fix your vague or bad divorce agreement. Your divorce agreement needs to be specific regarding the division of retirement assets so that your QDRO can be properly prepared.
Step 3: Preparing A QDROGoing through a divorce is an emotional and financial mess. Unfortunately, once you have finished your divorce you are not done if there are retirement assets that are being divided. While your divorce agreement states that you are entitled to part of your ex-spouses pension or 401k, in order to get your share a Qualified Domestic Relations Order (QDRO), must be prepared.
Not all divorce attorneys are experienced in preparing QDROs, so you may have to retain a different attorney. Federal law requires that in order for a retirement benefit to be divided a specific court order called a QDRO must be prepared. Typically the person receiving part of a retirement benefit pays for the cost of the QDRO. Although your ex-spouse may not be retiring for many years, the sooner you have a QDRO prepared the better. Submitting a QDRO after your ex-spouse has retired can be done but it can cause a host of problems. It can take several months for a QDRO to be finished as there are a lot of steps involved. QDROs involving a federal or state pension can take a year or more to complete.
ConclusionHopefully you now have a better understanding of the importance of gathering information regarding retirement benefits and the importance of addressing the details of how retirement benefits are being divided in your divorce agreement.
After your divorce is completed, there is an additional step required before you can obtain your share of a retirement benefit and that involves hiring an attorney to prepare a QDRO. Having an attorney experienced in QDROs review your divorce agreement before it is signed is a great way to protect yourself. As stated previously, a QDRO cannot fix a bad divorce settlement agreement..