- How does a QDRO work in California?
- Can courts in California divide retirement plans?
- Types of retirement plans QDROs cover
- Types of retirement plans that do not require a QDRO
- How to file a QDRO in California
- How long does it take to get funds?
- Filing time limit
- Cost
- References
A qualified domestic relations order (QDRO) is a document with instructions about how parties will split a retirement plan during a divorce. If you live in California, you would need a California court to issue a QDRO for you.
A QDRO requires a plan administrator to pay a portion of a retirement account to someone other than the primary beneficiary. One spouse could use a QDRO to access payments as a form of spousal or child support.
Without a QDRO, a plan administrator can't give a former spouse funds from a retirement account, even if the couples agree to it via another document.
How does a QDRO work in California?
Retirement accounts grow with time. People (and their employers) put money in, and the funds grow with interest. These assets are considered community property via California law, and they should be split during a divorce.
Unfortunately, determining how much of an account should go to one partner or the other can be difficult. Courts must untangle how much was in the account before the marriage and how interest profits should be split.
Officials use a Qualified Domestic Relations Order for Support (FL-460) form to outline what the couples agree to. This document can be filed with others used to finalize your divorce.
Can courts in California divide retirement plans?
Retirement plans can be incredibly valuable. They're also very common. Almost 35% of working-age people have an IRA, and the median value is about $30,000. As part of your divorce, the court must decide what to do with community property, such as retirement accounts.
There's no "best" way to divide a retirement plan with a QDRO. Courts consider plenty of factors, including these:
- The type of retirement plan
- The nature of the plan's benefits
- Why the parties want to divide them
A QDRO can’t award an amount that isn’t available in the plan, so you can’t ask for more money than your spouse has. This isn’t an opportunity to get revenge or derail your former partner’s future, either. Instead, it’s a chance to get your fair share of assets earned or developed during the marriage.
What types of retirement plans do QDROs cover?
Many forms of retirement savings exist. While QDROs are meant for many of them, they're not designed for every type of retirement plan you might have.
You can use a QDRO for retirement tools like these:
- Private pension plans
- Employee stock ownership plans
- 401(k) plans
- 403(b) plans
- 457 plans
Anything that the Employee Retirement Income Security Act (ERISA) deems a retirement plan requires a QDRO before plan administrators can move funds.
Whether a QDRO is required is generally controlled by the type of retirement plan that is being divided. If you’re splitting retirement accounts as part of your divorce, make sure you know what your retirement plan requires.
What types of plans do not require a QDRO?
Many types of retirement accounts do not require a QDRO. IRAs and most local/state/federal government-sponsored retirement plans are good examples. However, even if these plans do not legally require a QDRO, they may accept a court order similar to a QDRO to divide the account in question.
Plans that may not require a QDRO include the following:
Deferred annuities: Some plans in this class don’t require a QDRO and can be moved with a transfer order.
Some government retirement plans: Depending on the structure of your plan and the administrator, you may not need a QDRO. Generally, government-sponsored retirement plans are exempt from the QDRO provisions of ERISA. In California, examples include CalPERS and CalSTRS. However, these plans do permit division by using an order similar to a QDRO.
Likewise, although retirement plans such as military retirement and the Federal Employees Retirement System (FERS) are not subject to the QDRO provisions of ERISA, they do permit division by specialized court orders that function similarly to QDROs.
IRAs: In many cases, you can transfer funds from these accounts without a QDRO using a "letter of instruction" or a "transfer incident to divorce" form. However, many financial institutions are now requiring a QDRO to divide an IRA as an added layer of security. Contact your financial institution to confirm whether a QDRO is required before attempting to divide an account.
Financial companies have a lot of leeway in determining when they need a QDRO. Some require these documents for plans that other companies exclude. If you’re splitting retirement accounts as part of your divorce, find out what your organization requires.
How to file a QDRO in California
Follow these steps to create and file a QDRO in California:
1. Gather information
You must work with the bank or financial organization that administers the account in question. Make sure you know who you’re working with, and ask that organization if it has handled California QDROs before and will accept forms like California’s FL-460 document.Some organizations (like Fidelity) craft their own QDROs. Find out which form is accurate and applicable to your case.
2. Draft the QDRO
Once you’ve identified which form to use, fill it out carefully. If possible, work with your partner during this process to make sure you both agree with the plans you’ve outlined.
If spouses or partners agree on how much should go to each person, they can fill out the proper paperwork and move forward accordingly.
If spouses can't agree, they can hire mediators or attorneys to help. Some can do this work independently; others must hire actuaries or other financial professionals to help them.
3. Send the QDRO for approval
Your financial institution must review the plans you’ve drafted to make sure they match the company’s rules and regulations. Sometimes, plan administrators ask for changes. These changes are not optional, and they could trigger another round of negotiations.
4. Submit the QDRO to the judge
Once the QDRO draft has been approved by the financial institution, both parties should sign it. Then, it can be presented to the court during the final divorce paperwork process. The judge will sign and certify it.
5. Submit the final version
The signed and certified QDRO goes back to the financial institution for approval. The payment process starts shortly thereafter.
Need help with your QDRO? Our trusted partner, SimpleQDRO, can help.
How long does it take to get funds?
A QDRO is typically part of the larger divorce process, and timeframes are variable. Some people complete everything in weeks. Others battle over the details for months or even years.
The less you communicate with your partner, the longer the process will take. Do your best to collaborate, work through tough points together, and be reasonable with your demands.
Once the payor receives the paperwork, funds get transferred relatively quickly.
Is there a filing time limit?
A QDRO is most efficient when couples file the paperwork as part of their divorce. The funds here could help you understand spousal support payments, child support payments, and more.
That said, there's no official limit on QDRO filing. You could choose to revisit this issue at any point during or after your divorce.
But in general, it's best to talk about your financial issues during your divorce. Timeliness and cooperation could help you get the compensation you deserve. And thinking through things early will save you headaches down the road.
How much will it cost?
If you agree on terms relatively quickly, you could finish the QDRO process by spending a few hundred dollars. If you have complex accounts on the line and can’t come to terms, you could spend thousands on professionals to help you determine what is fair and equitable.
Potential costs associated with a QDRO include the following:
- Lawyers: Some lawyers specialize in crafting California QDROs. These professionals may charge between $500 and $750 to draft the documents. From there, they may charge around $100 per hour to guide the documents through the approval and finalization process.
- Mediators: A mediator can’t help you draft a QDRO, but they can help you decide how much of the account should be split and what division is equitable. Mediators in California tend to cost around $400 per hour. A court-appointed mediator could cost less.
- Administrative fees: Some companies charge their customers $1,000 or more to handle QDROs and make subsequent changes to the accounts.
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References
FAQs About Qualified Domestic Relations Orders. U.S. Department of Labor.Who Has Retirement Accounts? (August 2022). United States Census.
FAQs Drafting Qualified Domestic Relations Orders. U.S. Department of Labor.
Retirement Topics (QDRO) Qualified Donor Relations Order. (September 2022). Internal Revenue Service.
Steps for Creating a QDRO. Fidelity.
What Is a QDRO? (September 2022). U.S. News and World Report.
Types of Retirement Plans. U.S. Department of Labor
