Firm Overview
Qualified Domestic Relations Orders
- What are QDRO's?
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QDRO is an abbreviation for Qualified Domestic Relations Order, which divides a party's pension or other deferred compensation account in divorce or legal separation. QDRO's are for private employer accounts. If the party involved is an employee of state or local government (such as a police officer, fireman, teacher, etc.) the order is called an EDRO (Eligible Domestic Relations Order).
- Is a QDRO different from a divorce judgment?
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Yes. A QDRO or EDRO is an order filed along with or after the divorce judgment, that directs the employer to pay certain benefits to the employee's former spouse (who is referred to as an "alternate payee" in the order). The employee is referred to as the "participant."
The divorce or separation judgment sets forth the specifics of the plan division, such as:
- that the parties will split the proceeds of a certain account 50-50
- surviving spouse benefits
- early retirement benefits
- cost of living increases
But the QDRO or EDRO is the document that actually generates the division. In other words, without the QDRO the employer will not pay out benefits.
- What is the difference between a pension and a 401(k)?
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A pension is an example of what is called a "defined benefit plan," which pays the retired employee a specific monetary benefit, usually monthly. It is an annuity.
A 401(k) or an IRA is an example of what is called a "defined contribution plan." This is a plan to which the employee himself contributed, with or without some degree of matching contribution by their employer. Defined benefit contribution plans like 401(k)'s are usually easier to divide, because they are nothing more than a retirement savings account on which taxes are deferred, while pensions have extra features that make division more difficult.
Both types of plans, however, are divided through QDRO's or EDRO's.
- What Are "Surviving Spouse Benefits"?
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Surviving spouse benefits, if they are specified in the divorce judgment, are pension benefits that will be paid to a surviving former spouse ("alternate payee") upon the participant's death. This is good for the surviving former spouse, but if this election is made it reduces both parties' monthly benefits because the amount will now be calculated over two life spans, rather than just one.
Unless surviving spouse benefits are provided for in the divorce judgment, they may not be put in the QDRO with the result that pension benefits will terminate upon the employee's death.
- What Part of My Former Spouse's Pension or 401(k) Will I Receive?
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Generally, the benefits run parallel with the length of the marriage. In orther words, you are entitled to your portion of all benefits that accrued during the marriage (but not before) up to the date the divorce judgment was entered, or the actual date of division.
A judgment should provide for a percentage of the 401(k) or IRA (such as 50-50 split), as opposed to a specific dollar amount. This allows the parties to share and share alike, in any gains or losses that occur from the date of the divorce judgment to the actual date of division.
- How Long Does It Take To Get A QDRO Entered?
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Normally, the plan is intended to be divided as of the divorce date, but may not be submitted to the plan (employer) until months, or even years, later. You can help speed up the process by making sure your lawyer has important information needed for the QDRO, such as:
- Both parties' names and current addresses
- Dates of Birth
- Social Security Numbers
- Valuation Dates (usually the date of marriage to the date of divorce)
- Employer's Specific Name
- Plan to be divided
Also, you and your spouse need to be clear on whether or not you want to include such things as surviving spouse or early retirement benefits. Unanswered questions like these can slow the process for the person preparing the QDRO.
Another important factor in how quickly a QDRO is approved is the requirements of the employer. Many employers have their own QDRO forms. While they may not use the actual form, providing your attorney with a copy of this can help them understand exactly what your employer requires for an acceptable QDRO.
- Why is this important?
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Because even though the court may approve and sign a QDRO, it does not actually become effective until accepted by the employer.
- Who Prepares the QDRO?
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Many attorneys refer the preparation of QDRO's to specialists who handle only this aspect of the divorce. Often these specialists are not lawyers, but financial people or actuaries. Hiring a specialist to prepare your QDRO can save you time and money.
Nevertheless, for your own peace of mind remember that QDRO's are generally not complete on the date the divorce judgment is entered, so don't be dismayed to learn that there is "more to come" after the divorce. The divorce is official; but the financial benefits will not be in effect until the QDRO's are entered and accepted by the employer.
This FAQ is meant to give general explanations of different aspects of the QDRO and EDRO. It is by no means an exhaustive discussion on the topic. For specific information on your case you should contact your lawyer.