QUALIFIED DOMESTIC RELATIONS ORDERS (“QDROS”)
Brian T. Hemphill, P.C. assists people with preparation and implementation of Qualified Domestic Relations Orders, which are also called QDROs.
For the purposes of this article, the term “domestic relations proceedings” refers to divorce and legal separation proceedings and the term “retirement benefits” refers to retirement accounts, pension benefits and similar retirement assets.
When couples break up, some sort of domestic relations proceeding is necessary to separate their lives and their assets, often including retirement benefits. Typically, a retirement benefit is divided to award a share of that benefit to a former spouse, a child, or another dependant. However, retirement benefits can also be divided to deal with child support or spousal support obligations.
There are two main court systems in the United States: federal courts and state courts. Generally, domestic relations proceedings take place in the state courts, not the federal courts. Likewise, the division of assets as part of domestic relations proceedings is governed by state law. However, the division of a retirement benefits is controlled by federal law, namely the Employee Retirement Income Security Act of 1974 (also known as “ERISA”) and the Internal Revenue Code of 1986. Because federal laws generally supersede state laws, any court order or judgment from a state court domestic relations proceeding must comply with federal law. In QDRO lingo, the state court produces a “Domestic Relations Order” or “DRO”, but that DRO must be “qualified” and meet the requirements of the federal law to be a “Qualified Domestic Relations Order”, or “QDRO”. If a DRO issued by a state court as part of a domestic relations proceeding is not “qualified” under federal law, then the DRO cannot be used to divide a retirement benefit.
Strictly speaking, the term QDRO only applies to retirement accounts and pensions that are controlled by ERISA. However, the term QDRO is often applied more broadly (but incorrectly) to a wider variety of retirement assets, such as Individual Retirement Accounts (IRAs) and government or military pensions. Those other retirement assets have separate sets of rules and the court documents that divide them are not technically “QDROs”, but people often refer to them as such.
It is possible to include the information necessary for a QDRO in the final judgment or decree issued in the domestic relations proceeding. However, for reasons related to timing, strategy or privacy, it is often impractical to do so. Most often, the final judgment or decree contains the terms of the account division, but leaves out much of the information necessary to “qualify”, so that information is contained in a separate document. In general, it is usually wise to have the proposed DRO reviewed in advance by the plan administrator that administers the retirement benefit; that review can often reveal problems with the proposed DRO that can be fixed before submission of the proposed DRO to the Court. Once a final draft of the proposed DRO is reached, that document is submitted to the Court for the judge to review and sign. Once the DRO has been signed by the judge, a court-certified copy of the signed DRO must be forward to the plan administrator for implementation. Only once the DRO has been received and implemented by the plan administrator is the DRO finally qualified and considered a QDRO and only then will the retirement benefit finally be divided.
This article is a general overview of QDROs. For more detailed information, please do not hesitate to contact us. In addition, you can obtain more detailed information from the U.S. Department of Labor’s website about QDROs.
If you need assistance with preparation of one or more Qualified Domestic Relations Orders, please feel free to contact Brian T. Hemphill.