QDRO (pronounced “quad row”) stands for Qualified Domestic Relations Order. QDROs are orders from the court to the administrator of a retirement plan spelling out how the plan’s benefits are to be assigned to each party in a divorce. Virtually all retirement accounts other than IRAs cannot be divided in a divorce without a QDRO.
There is a federal law called ERISA (Employment Retirement Income Security Act) which governs private employee pension plans and retirement savings vehicles as 401ks. The ERISA law specifies that these plans/vehicles may not be divided or reassigned except by a QDRO.
QDROs and DROs
ERISA doesn’t govern church and public sector retirement plans/vehicles. Nonetheless, if these are to be divided or reassigned in a divorce, a DRO (“domestic relations order”) is required. QDROs and DROs are normally both referred to as QDROs. Tax-sheltered annuities also require QDROs.
QDROs are not required to divide or reassign traditional IRAs, Roth IRAs, SEP-IRAs and deferred annuities. A rare exception is company-sponsored IRAs.
A QDRO assigns to the non-employee spouse the right to receive all or a certain portion of the benefits payable with respect to the employee spouse’s participation in the retirement plan.
Each retirement plan to be divided requires its own QDRO. And each QDRO costs money. Not many legal or financial professionals prepare QDROs. Expect to pay a professional between $600 and $1500 for each QDRO, in addition to the other costs of your divorce. Some retirement plan administrators have fees for each QDRO on top of this.
A QDRO has very exacting drafting requirements. These requirements vary from plan to plan. It’s critical that your QDRO be complete and accurate. Otherwise it will be rejected by the retirement plan administrator. Or it might fail to specify accurately what was agreed in your divorce settlement. Defined benefit plans (pensions) require more drafting expertise than defined contribution plans (such as 401ks).
The QDRO must specify exactly what division of retirement benefits is to occur. This may be expressed as the amount or percentage of the employee spouse’s benefits to be paid to the non-employee spouse or the exact manner in which such an amount or percentage is to be determined.
You should try to submit a QDRO to the court for signature before or along with the rest of the divorce settlement paperwork. If this is not possible, try to minimize the delay in submitting the QDRO to the court. There are a lot of steps involved in getting a QDRO prepared, approved and implemented.
A joinder is a court order that brings a retirement plan into a divorce case as a 3rd party. A joinder has to be prepared, submitted to the court, signed by the court and then served on the retirement plan administrator. The joinder notifies the plan administrator that there should be no withdrawals from the plan during the divorce except by court order. All or nearly all retirement plans that are divided by a QDRO must first have a joinder.
If there is any concern in a divorce about the possibility of improper retirement account withdrawals, obtaining a joinder for each plan is a way to prevent this.