QDRO in Texas

• How does QDRO work in Texas?
• How is a QDRO calculated?
• Can courts in Texas divide retirement plans?
• What types of plans does a QDRO cover?
• How to file a QDRO in Texas
• Timing: How long and limits
• How much does a QDRO cost?
• Dispelling QDRO myths
• References

A qualified domestic relations order (or QDRO) splits retirement plan benefits. You can use this document during your divorce to get your fair share of the money earned during your marriage.

Some people determine the value of retirement accounts and leave them intact during a divorce. You might keep the house, for example, and your ex might keep the entire 401(k) amount.

But you will need a QDRO if you want to split some types of retirement accounts. An approved form demonstrates to the financial firm that it is legally appropriate to move funds from one account to another.

How does a QDRO work in Texas?

All states have provisions for QDROs. Retirement accounts often represent the bulk of a couple's wealth, and if you've been married for a long time, you've likely invested heavily in this asset. Splitting your money is an important part of your divorce.

In Texas, a QDRO gives a spouse an equitable percentage of the current value of a retirement account. Couples follow a few basic steps, including these:

• Drafting documents
• Agreeing to terms
• Bringing forms to court 
• Delivering authorized forms to the account manager 

Whether the retirement account is part of the Employees Retirement System of Texas or from a private organization, the QDRO works in much the same way. But every company can have slightly different preferred QDRO forms. That’s legal, but it can make drafting the document difficult.

How is a QDRO in Texas calculated?

Texas is a community property state, meaning that assets acquired during the marriage belong to both parties and should be split fairly in the event of a divorce. A QDRO makes this possible. 

Finding a fair mix requires you to determine the following:

• How much was the account worth before the marriage? 
• How much was contributed during the marriage?

Contributions made during marriage are community property per Texas law Family Code, Chapter 7. Both parties have equal rights to it. Some people split this amount down the middle, while others find a different model that’s right for them. You might take a smaller debt load in return for a smaller share of the total amount, for example.

Can courts in Texas divide retirement plans?

Texas law says community property should be divided in a manner that is “just and right,” but that doesn’t always mean splitting values in half. People are encouraged to collaborate and determine what split seems right to them.

One party can’t shield a retirement plan from the other. Retirement accounts are community property and subject to Texas law. You must agree on what to do with this important asset.

Mediation can help you find a path forward if you can’t decide together. A mediator is an impartial third party that helps people negotiate effectively. You can hold a conversation with a mediator’s help to discuss how your retirement accounts should be split and what both parties will get in return for their willingness to bend. A mediator won’t write your QDRO, but after this conversation, you’ll know the terms you want outlined by the QDRO lawyer you hire.

Suggested: A Beginner's Guide to Divorce Mediation

What types of plans does a QDRO cover?

Retirement accounts covered by the Employee Retirement Income Security Act (ERISA) require QDROs. In general, if someone's retirement stems from work done in the private sector or state government, it's part of ERISA. 

Plans that typically need a QDRO include the following:

• 401(k)
• 403(b)
• Employee stock ownership plans (ESOP)
• Profit-sharing plans
• Simplified employee pension plans

Individual retirement accounts (IRAs) and federal government pension plans are typically not covered by a QDRO. You must determine how to split these assets, but you won’t need to communicate with the bank or investment firm via a QDRO.

How to file a QDRO in Texas

While a QDRO is part of a divorce, you must have the paperwork prepared before you go to court. The judge will sign your document when you finish your divorce. 

Step 1: Find your QDRO template

Contact the retirement account's plan administrator, and ask for a sample QDRO form. Each organization has slightly different preferences. It's best to work with them now so you don't have to start again when they reject your form. 

Step 2: Contact a lawyer

Ask a legal professional with experience in QDROs to help you agree to the terms and fill out the form. Your lawyer can also give a draft QDRO to your plan administrator to ensure that it meets the institution’s requirements.

Step 3: Bring your form to your divorce hearing

Texas requires most couples to go to court to finish the divorce process. Bring your agreed-upon form to the hearing so your judge can sign it. 

Step 4: Bring your signed form to the clerk 

Some organizations, including the Employees Retirement System of Texas, require a clerk's stamp and signature on QDROs. Bring your signed copy to the clerk in the courthouse processing your divorce, and ask the clerk to stamp, sign, and date the form.

Step 5: Deliver the form to the plan administrator

When your form is signed, stamped, and official, bring it to the plan administrator. The organization will review the details and prepare to split your account. 

Timing: How long and limits

Preparing a QDRO typically takes a few weeks to a few months. Collaboration with your ex can shorten this time frame. The more you argue with your ex, the longer the process will take, and the more it will cost you both. 

Even with a QDRO, you won't get funds right away. For example, the Employees Retirement System of Texas can't release funds if employees are still working within the system. You may need to wait years to get your money.

In theory, you could draft a QDRO at any point, including after your divorce. No formal time limits exist. But the longer you wait, the less likely it is that a judge would agree to split assets. It’s best to take this step early in the divorce process. 

How much does a Texas QDRO cost?

Attorneys charge between $400 and $900 to prepare a QDRO and may charge more if the process is long. Collaborating can save you both money and hassle, so it’s worth it to find points of agreement with your spouse.

Dispelling QDRO myths

QDROs can be confusing, and plenty of people have questions about what they are and how they work.

For example, some people think the state of Texas creates QDRO documents for divorce. While Texas laws outline how retirement accounts should be handled when people split, the state doesn’t create downloadable forms for people to use. The organizations that handle the retirement accounts create these forms.

Some people believe that an approved QDRO entitles them to a check for funds they can cash right away. While the rules can vary from bank to bank, most retirement entities won’t give you money right away. Instead, the funds you get in the divorce will head to an individual retirement account you can access when you meet the organization’s age requirements or other rules.

Finally, some people believe that mediators draft all QDROs. While a mediator performs a crucial role during the negotiation of QDRO terms, they may not write the document for you. QDROs are complex financial documents that can be tricky to craft properly. A lawyer typically handles this task.

Suggested:

• Top Resources for Divorce in Texas
• How to Slay Your Divorce Negotiations Like a Pro

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References