Dealing with finances, especially retirement plans, can be a tricky undertaking during divorce. A key legal document that often comes into play during divorce proceedings is a qualified domestic relations order (QDRO). This resource is usually used when one party’s retirement account needs to be divided, but it’s not typically needed if both parties have relatively equal retirement accounts of their own.
A QDRO is a judicial order that allows an ex-spouse to receive a portion of the other spouse’s retirement plan or pension benefits. It provides legal permission for the retirement plan to pay someone other than the plan participant. The individual receiving a share of the plan is known as the alternate payee.
When does a QDRO apply?
A QDRO applies during a divorce or legal separation when one party has a retirement plan that needs to be divided. A divorce decree or separation agreement can’t split a retirement plan. A QDRO must be used for specific retirement plans, including 401(k) plans, for the division to be legal and for the participants to avoid penalties. A QDRO can define how to divide the retirement benefits equally or in another specified proportion. It can also establish how and when the alternate payee will receive benefits. This could be a lump-sum payment or regular payments over time.
What if a plan administrator does not accept a QDRO?
There are instances in which the plan administrator doesn’t accept a QDRO. The reasons can vary, such as the order not containing all the necessary information or not conforming to the plan’s rules. If a plan administrator rejects a QDRO, they are required to provide a written explanation stating the reasons for rejection. At this point, the order must be corrected to address the problems and resubmitted.
Understanding what a QDRO is, when it applies and how to handle potential issues with its acceptance can be critical for both parties involved in a divorce. In some cases, the retirement accounts comprise a large portion of the property that a couple must divide. Seeking legal guidance regarding how to meet property division goals effectively is generally a good first step forward.