Q. What Is A QDRO?
A. The term “QDRO” stands for Qualified Domestic Relations Order. A QDRO is a special type of court order that divides retirement plan benefits between parties in a dissolution or legal separation.
Q. Why Do I Need A QDRO?
A. Both you and your spouse (or former spouse) have certain rights to benefits under a particular retirement plan. The person who earned the retirement benefit through his or her employment is called the “participant.” The other person is referred to as the “alternate payee.” Federal laws governing retirement plans prohibit a plan from paying benefits to anyone other than the participant-unless directed to do so under a QDRO. Accordingly, a QDRO allows the plan to pay benefits to the alternate payee.
Q: My wife had another QDRO specialist prepare the order and is threatening to take me back to court if I do not sign it. I do not want to spend a lot of money on this, but also do not want her to get more than what she is entitled to under our Judgment or the law. Will you review the QDRO and advise me whether or not it requires modification before signing?
A: Yes. You have been presented with a legal document that will impact your retirement benefits. It is extremely important that the QDRO protect your rights and provide for an accurate division. It is also important that you understand fully what you are signing. We can do everything from reviewing the QDRO and providing you with our comments and suggestions to engaging in negotiations with your former spouse’s attorney in an effort to resolve the matter. In certain cases, we will also represent you in litigation involving the QDRO.
Q: Our Judgment calls for the division of many retirement plans and IRAs. My former spouse and I agree to offset the values and limit the number of accounts that will actually be transferred. Can you help us value these retirement plans and accounts and offer advice as to which plans and/or accounts we should use to resolve the division?
A: Absolutely. In fact, we regard the tasks of valuing benefits for purposes of offsetting plans and accounts as both challenging and fun (that may be overstating it!). In such cases, we get to close out the word processing program and open our spreadsheets and really work with numbers. Once we arrive at values for each plan/account, we can get a bit creative and offer options to the parties to resolve the issues. If the parties reach an agreement that is different from the precise terms of their Judgment, we will also prepare an order that either modifies, amends or supersedes that portion of the Judgment as it relates to dividing retirement plans and accounts.
Q. Is A QDRO Needed For All Types of Retirement Plans?
A. Governmental or public retirement plans (e.g., military pensions, federal, state, county or city retirement plans) are not subject to the QDRO rules. These plans do, however, typically require a court order for dividing retirement benefits, which resemble QDROs.
Q: My former spouse and I have disputed just about every issue in our divorce. Although our Judgment states that I am to receive 50% of the community property share of his pension, I anticipate that he will contest the QDRO or may try to influence how it is drafted. How will your office handle disputes regarding the QDRO?
A: This is precisely what distinguishes our services from other QDRO preparation services. We have encountered just about every issue and many personalities in the course of our representation. In cases where there are valid points of contention, either through ambiguities in the Judgment or law, we present the client with as much information as possible so that they can decide whether to open the doors to negotiation or whether to move forward with litigation. We regard litigation as a last resort and make every attempt to resolve issues before taking that step.
Q. Will The QDRO Preparer Compute The Amount Payable To The Alternate Payee?
A. Unless the Marital Settlement Agreement (MSA) or Judgment provides the amount payable to the alternate payee, the QDRO preparer will use a formula that instructs the plan administrator how to compute the amount payable to the alternate payee. It is a common misconception that the QDRO will include the amount payable to the alternate payee. A formula has the advantage of accounting for adjustments to the benefit over time. In some circumstances where a fixed dollar award is required, we will offer to perform the calculation, or where a defined benefit plan is involved, refer the client to a qualified actuary to do so.
Q. How Will Payment Be Made To The Alternate Payee?
A. If the plan allows for a lump sum distribution, the alternate payee can elect to receive his or her share in one single payment or rollover his/her share to an Individual Retirement Account (IRA) or other eligible plan. This is typical of 401(k) or profit sharing plans. Defined benefit plans, however, generally only pay benefits in monthly installments or “annuities.” If the plan will only pay benefits in the form of an “annuity” the alternate payee will typically receive monthly payments for life.
Q: I got divorced over 15 years ago and have a QDRO that assigns me a portion of my wife’s pension plan. Through our adult children, I learned that she is thinking of retiring soon. I believe that my share is pretty small and I am willing to waive it. Can I hire you to look in to the value of my share? If I agree to waive my interest in her plan, do I need another QDRO that awards her 100% of her pension?
A: How generous of you. You may certainly hire our firm to assist you with your decision whether or not to waive your rights to the pension. If you decide to waive your interest, we will need to prepare a court order (not a QDRO) that vacates or voids the existing QDRO so that your claim to benefits under her pension plan is released.
Q. How Does The Death Of Either Party Impact Benefits Payable Under A QDRO?
A. This answer depends on a variety of factors such as the type of plan involved, whether the participant is retired, and the wording of the QDRO. For instance, in the case of a defined benefit plan, if the participant is not retired the QDRO can provide that the alternate payee will receive benefits over his or her lifetime. In this case, the participant’s death will not impact the alternate payee‘s benefits once payments to the alternate payee begin. In the case of a 401(k), the participant‘s death will have no impact on benefits payable to the alternate payee assuming proper wording in the QDRO. QDROs must also address what happens when the alternate payee dies. An alternate payee‘s ability to transfer his or her benefits to a third part at death similarly depends on the type of plan involved and the wording of the QDRO.
Q. How Long Does the QDRO Process Take?
A. In the majority of cases, the process of obtaining a valid QDRO takes two to four months from the time we begin drafting the order. We will not begin drafting the QDRO until we receive all of the requested information and materials. QDROs are drafted on a first come first served basis-although some are given higher priority where there is a greater risk of loss of benefits or in cases of bifurcations. The length of the process varies from case to case and depends on several factors-many of which are beyond the control of the preparer such as the amount of time it takes for the Court to issue the QDRO or the time it takes for the Plan Administrator to formally approve the QDRO. Once retained, we do our best to move the process along by sending periodic follow up letters regarding the status of the QDRO. Even so, obtaining a QDRO and receiving benefits pursuant to the QDRO takes time. For this reason, we do not promise when the QDRO will be complete nor do we accept responsibility for losses that may occur due to the inherent delays in the process.
Q. Who Should Prepare The QDRO?
A. Retirement plans and the rules governing them are complex and constantly changing. There are a variety of plans-each containing its own specific requirements and unique features. For a QDRO to be valid, it must meet specific requirements under the law and must be specifically tailored to the particular retirement plan. Although the need for QDROs arise out of a dissolution or separation, many family law attorneys refer their clients to an attorney specializing in drafting QDROs to ensure accuracy, reduce risk, and minimize cost.
Q: I found a QDRO service on-line that will prepare my QDRO for less than your firm. Tell me why I should not use the on-line service and save some money?
A: Dividing retirement benefits in a divorce is not brain surgery—but it is somewhat technical. We are dividing financial assets that are likely pretty important to you. We believe that discounted QDRO fees often found on–line lead many individuals to regard the QDRO as fairly standard document much like a “form” to be completed. The QDRO is not a form and your retirement benefits are not to be treated like “fruit” that can be cut in half and shared. We deliver a wide range of services and offer accessible staff who will address your questions, concerns, or fears regarding the process. Although the end product will be a QDRO that divides retirement benefits, the fee paid for our services has far less to do with time spent on the word processor and more with time and focus on you, your concerns, your particular facts and circumstances, and your financial welfare.
Q. Is A QDRO The Only Way To Divide Retirement Plan Benefits?
A. No. Recall that a QDRO is an order that directs the Plan to pay money to the nonparticipant spouse. Alternatively, the parties could agree that the participant will pay or “buy-out” the alternate payee’s interest. To do this, the parties typically hire a pension actuary to perform a valuation. Generally, buyouts are agreed to prior to finalizing the Marital Settlement Agreement (MSA) or Judgment.
Q: Your office is located about 50 miles from my home and office. I work 5 days a week and despise the freeways in the L.A. area. Is it necessary to meet in person?
A: In most cases, the exchange of information, documents, and other materials, as well as advice, recommendations, opinions, can be done via telephone communication, correspondence, and email or fax. With that said, we truly enjoy meeting our clients face to face. Therefore, you are always welcome to visit our office for an in-person meeting—even if just to meet and greet one another. If you cannot make it to our office, you will find that we are quite capable of making a personal connection through the airwaves.
Q: I am a family law attorney who handled a divorce for a woman over 20 years ago. The Judgment reserved jurisdiction over the husband’s pension plans through his employer. The Judgment was taken by default and at the time we had very little information concerning his pension. She has asked for a referral to a QDRO attorney to divide his pension plans. Is this something you can handle?
A: We have helped many individuals in this situation secure their rights to pension benefits. Our knowledge and experience with countless companies/entities and their retirement plans give us a great start in gathering information that will enable us to “find” pension assets that have a community property interest. We will seek information through subpoena or otherwise in an effort to locate the plan or plans that can divided; and then take any and all steps necessary to complete the division.