Qualified Domestic Relations Order
QDRO's Edwardsville IL
What is a Qualified Domestic Relations Order?
A “qualified domestic relations order” (QDRO) is a domestic relations order that created or recognizes the existence of an “alternate payee’s right to receive all or a portion of the benefits payable with respect to a participant under a retirement plan, and includes certain information that meets other requirements.
QDRO’s are used to transfer money for a 401k (or other Qualified Plans) to an ex-spouse’s IRA. The ex-spouse maintains the tax-deferral benefits that any other traditional IRA would have, and are also subject to the same restrictions.
What happens in the case of the QDRO is that the court determines what amount (usually a percentage, although it could be a specific dollar amount) of the qualified retirement plans balance is to be presented to the non-owning spouse. Once the amount is determined and finalized by the court, a QDRO is drafted and provided to the non-owning spouse. This document allows the non-owning spouse to direct the retirement plan custodian to distribute the funds in the amount specified.
Qualified Domestic Relations Order FAQ
A “qualified domestic relation order” (QDRO) is a domestic relations order that creates or recognizes the existence of an alternate payee’s right to receive, or assigns to an alternate payee the right to receive, all or a portion of the benefits payable with respect to a participant under a retirement plan, and that includes certain information and meets certain other requirements.
Reference: ERISA § 206(d)(3)(B)(i); IRC § 414(p)(1)(A)
A domestic relations order is a judgment, decree, or order (including the approval of a property settlement) that is made pursuant to state domestic relations law (including community property law) and that relates to the provision of child support, alimony payments, or marital property rights for the benefit of a spouse, former spouse, child, or other dependent of a participant.
A state authority, generally a court, must actually issue a judgment, order, or decree or otherwise formally approve a property settlement agreement before it can be a domestic relations order under ERISA. The mere fact that a property settlement is agreed to and signed by the parties will not, in and of itself, cause the agreement to be a domestic relations order.
There is no requirement that both parties to a marital proceeding sign or otherwise endorse or approve an order. It is also not necessary that the retirement plan be brought into state court or made a party to a domestic relations proceeding for an order issued in that proceeding to be a domestic relations order or a qualified domestic relations order. Indeed, because state law is generally preempted to the extent that it relates to retirement plans, the Department takes the position that retirement plans cannot be joined as a party in a domestic relations proceeding pursuant to state law. Moreover, retirement plans are neither permitted nor required to follow the terms of domestic relations orders purporting to assign retirement benefits unless they are QDROs.
Reference: ERISA §§ 206(d)(3)(B)(ii), 514(a), 514(b)(7); IRC § 414(p)(1)(B)
A domestic relations order may be issued by any state agency or instrumentality with the authority to issue judgments, decrees, or orders, or to approve property settlement agreements, pursuant to state domestic relations law (including community property law).
Reference: ERISA § 206(d)(3)(B)(ii); IRC § 414(p)(1)(B); Advisory Opinion 2001-06A.
A domestic relations order can be a QDRO only if it creates or recognizes the existence of an alternate payee’s right to receive, or assigns to an alternate payee the right to receive, all or a part of a participant’s benefits. For purposes of the QDRO provisions, an alternate payee cannot be anyone other than a spouse, former spouse, child, or other dependent of a participant.
Reference: ERISA § 206(d)(3)(K), IRC § 414(p)(8)
QDROs must contain the following information:
- The name and last known mailing address of the participant and each alternate payee
- The name of each plan to which the order applies
- The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee
- The number of payments or time period to which the order applies
Reference: ERISA § 206(d)(3)(C)(i)-(iv); IRC § 414(p)(2)(A)-(D)
There are certain provisions that a QDRO must not contain:
- The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan
- The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value)
- The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO
- The order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse
Reference: ERISA §§ 206(d)(3)(D)(i)-(iii), 206(d)(3)(E)(i)(III); IRC §§ 414(p)(3)(A)-(C), 414(p)(4)(A)(iii)
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