Divorce 101: Qualified Domestic Relations Order - What is a QDRO? Part 1

July 29, 12:56 PMPittsburgh Divorce Financial Planning ExaminerDonna Cheswick

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A QDRO, pronounced QUAD-row or CUE-dro, is short for Qualified Domestic Relations Order. This is a legal order that needs to be included in a divorce agreement and allows a divorced spouse to receive all or a portion of a qualified retirement plan from their ex-spouse. The employee whose interest is being transferred is known as the “participant” and the individual to whom the interest is being transferred is known as the “alternate payee.”

According to the Department of Labor – Employee Benefits Security Administration’s  QDRO exception, a domestic relations order may assign some or all of a participant’s pension benefits to an alternate payee which cannot be anyone other than a spouse, former spouse, child, or other dependent of the participant if and only if the order is a “qualified domestic relations order.”

A domestic relations order is a judgment, decree, or order that is made in agreement with state domestic relations law and that relates to the provision of child support, alimony payments, or marital property rights for the benefit of a spouse, former spouse, child, or other dependent of a participant.
A court must formally issue and approve a property settlement agreement before it can be a domestic relations order under ERISA. The mere fact that an agreement is agreed to and signed by the parties will not cause it to be a domestic relations order.

To divide qualified retirement assets in the case of divorce a QDRO must be obtained. It must be in writing and can be included as part of a divorce decree or court-approved property settlement or can be issued as a separate order. Benefits of more than one qualified plan of the same or different employers can be addressed in one QDRO as long as benefit rights are clearly specified. There are several things every QDRO must include:

• The name and address of the participant and alternate payee
• The name of the plan from which the benefit is to be transferred
• The dollar amount or percentage (or method of determining the amount or percentage) of the benefit to be paid out to the alternate payee
• The number of months or specific period of payments to which the order applies

Likewise there are several provisions that a QDRO must not include:

• The order cannot compel a plan to provide benefits or options not provided under the plan
• The order must not require a plan to grant benefits to an alternate payee if they have already been legally assigned to someone else under a previous QDRO (ex: an ex-spouse from a previous marriage)
• The order cannot call for increased benefits (determined by actuarial value) of the participant’s interest in the plan.

Photo: By Brian Turner
NEXT... Divorce 101: Qualified Domestic Relations Order - Issues with QDRO’s, Part 2

If you enjoyed this article you may want to view: Financial Expertise is Essential in the Divorce Process or 10 Financial Mistakes That You Can’t Afford During a Divorce or Pennsylvania Law on Child Support