Understanding QDROs: Dividing Retirement Plans in Divorce

Do you have a 401k? A military pension? Is your spouse a federal employee, or a police officer? Did you know that getting a divorce doesn’t automatically divide your retirement assets?  

Simply stating in your divorce documents that one party is awarded marital or community property will not divide the retirement benefit. For any type of retirement account division, you need a QDRO. 

What is a QDRO?

A “QDRO” is a court order which is used to divide a retirement plan. The actual order may be called a Qualified Domestic Relations Order for a private plan or called a Domestic Relations Order for a public plan.   

A QDRO can also be used to collect alimony or child support.

How do you get a QDRO?

The best plan is to work with an expert that is familiar with preparing and filing QDROs. An incorrectly prepared or filed QDRO could prevent you from accessing critical retirement funds down the road, so you’ll want to make sure things are done correctly.

Hello Divorce has partnered with QDROCounsel to offer QDRO preparation and filing at a low cost, flat-rate fee. Click here to read more about filing your QDRO with QDROCounsel and get a free, flat-rate quote. 

Some retirement plans offer QDRO forms to couples going through divorce, but these sample QDRO documents can be confusing and are often drafted to benefit the retirement plan and are thus not necessarily trustworthy.

There is no one-size-fits-all QDRO. For an accurate and fair division, your QDRO should be prepared specifically for you, based on your retirement benefits and the facts of the case. The safest way to do that is through a QDRO expert.

When should I start thinking about dividing retirement benefits?

You should start thinking about dividing retirement assets at the beginning of the divorce process. Retirement accounts gain value over time and can be a substantial asset in the negotiation process. It is best to get your QDRO drafted before the end of your divorce so when your divorce judgment is filed, your QDRO can be filed then or soon thereafter.

Dealing with retirement benefits as soon as possible helps protect both parties. Correct retirement plan information will be needed for your financial disclosures documents. You will need the best contact information for each retirement plan in order to notify the plan to place a hold on any payment from the account using tools like joinder pleadings (California only), or a notice of adverse interest. You may need to do a valuation of the retirement account, which is always best to handle before the end of your case. Your divorce or legal separation judgment will dictate how retirement benefits should be divided in a QDRO, so it is a good idea to understand how each account should be divided.

How do I place a hold on a retirement plan(s)?

At the beginning of your case (especially if you are the nonmember spouse), it is always a good idea to prepare either a Notice of Adverse Interest or Joinder Pleadings (California only) to serve on the participant’s retirement plans as soon as possible in an attempt to create a temporary hold on the retirement account.

Be warned: many are under the mistaken assumption that a nonmember spouse is fully protected once these documents are served on a plan. While many plans place a temporary hold, there is no guarantee that benefits will be withheld. But the service of these documents on most plans is the best you can do to protect the marital interest in a plan until a QDRO is filed and served. These documents have no effect against federal public plans (FERS/CSRS), military plans and IRAs. 

Who will pay taxes?

One of the purposes of a QDRO is to allow for the nonmember spouse to pay taxes on any benefits instead of a participant.

If the nonmember is not rolling over funds to an IRA or other defined contribution plan, then the nonmember will pay taxes on whatever payment is made to the nonmember from the plan with a valid QDRO. Generally, the participant does NOT pay taxes on the nonmember’s share unless the QDRO is for support.

Do I need a QDRO if the entire retirement benefit is awarded to the participant?

The only reason to do a QDRO is if any share of retirement benefits (including any survivor benefits) are being assigned to a former spouse. If that is not the case, the judgment should have clear language that the participant is awarded 100% of the retirement benefit and that the former spouse waives any interest in it. Note however if the participant is already retired, there may be irrevocable survivor benefits awarded to the former spouse which cannot be waived under the law.

RELATED: Do you understand what types of retirement plans exist? Read our resource, What is a QDRO?

What happens if I don’t do a QDRO?

If a QDRO is not done before a participant’s death or retirement and the parties are divorced, then the ex-spouse (the non-member of the retirement plan) may not receive any funds. This is why it is so important to not delay getting your QDRO!

If you are already divorced, it’s not too late to do a QDRO. But you should move forward with this paperwork now so there is no loss of benefits. At QDROCounsel, we often get calls from an ex-spouse asking to create a QDRO after a participant has died, and in many cases, there is no way to help that person.

Can a domestic partner get a QDRO?

A domestic partner dissolution may divide a state’s public plan with a domestic relations order. However, a private employer plan and any federal plans (e.g. federal employees or military) will not accept a QDRO. For domestic partnerships, direct payments to a former spouse from a retirement plan can be paid from a state public plan but cannot be paid from any private employer plan or federal plan.

For domestic partners, many times the parties will equalize and offset the retirement asset against some other asset if the plan cannot be divided with a QDRO. Or, the parties may choose to retain counsel to draft a pay-over order to pay the non-member a share of the retirement asset at the time it is paid to the member. It is the experience of our partners at QDROCounsel that pay-over orders can be difficult for both parties due to enforcement and tax issues. Settling in some way, if possible, is often the best option.

What if my spouse won’t sign the QDRO?

The QDRO will be implemented by a retirement plan so long as it is signed by a judge and filed with the court. If one party won’t sign the QDRO, then you will have to submit the QDRO to the court based on your local plan rules. You may need extra legal help in getting the QDRO filed.

But how do QDROs actually work?

After a plan determines that the order meets the requirements of a QDRO, the former spouse can expect the plan (not the ex-spouse) to directly pay his or her share of the benefits. So for example, if the plan is a pension, each party will receive their share directly from the plan without needing to go through the other. If the plan is a 401k, the community and separate property shares will be segregated with each spouse having their own retirement accounts. Each recipient will be taxed only on the amount she or he receives.

QDROs should not be prepared by anyone other than an expert trained in marital property valuation and division. In some cases, QDROs can be even more complicated than anything we present about QDROs on this site. For example, sometimes prior to the preparation of a QDRO or division of a retirement plan, community and separate property interests may need to be valued or traced. While not all issues in a divorce require a QDRO specialist or lawyer, this is one issue that must be paid close attention to.

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Please note that this resource is meant for informational purposes only and does not constitute legal advice. Reading this blog does not create a lawyer-client relationship with Levine Family Law Group, Hello Divorce, QDROCounsel, LLC, or QDRO Benefits Law Group. This blog is written from the perspective of existing law and all attempts are made to be accurate and current on all legal developments. However, please do not make decisions that will affect your future based on things you’ve read on our website. Instead, consult with a Certified Family Law Specialist, like those of LFLG – or any other you prefer. The same goes for QDRO-specific questions: you may consult with QDROCounsel, LLC or QDRO Benefits Law Group or any other QDRO specialist you prefer – but be sure to seek out sound legal advice that pertains specifically to the facts of your case.

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