Qualified Domestic Relations Order (QDRO)

What is a Qualified Domestic Relations Order?

A qualified domestic relations order, or QDRO, is a court order designating a portion of a retirement plan to another person, typically an ex-spouse or child. The money taken from the retirement fund will usually be used to pay child support, alimony, or marital property rights to another spouse. QDROs must comply with the state’s domestic relations laws and with the Employment Retirement Income Security Act (ERISA), a federal law that protects one’s retirement assets.

A QDRO is granted in the form of a court-issued judgment order containing the following details: the name and mailing address of both parties, the name of the retirement plan to which the order refers, the amount of percentage of the plan that will be granted and the number of payments.

Key Takeaways

  • A qualified domestic relations order (QDRO) allows a payee - such as an ex-spouse, child or other dependent - to collect money from another person’s retirement account.
  • The funds are typically needed to cover child support, alimony or marital and community property rights.
  • There is no deadline for a QDRO, but they should be issued as early as possible.

QDRO Limitations

It is important to keep in mind that qualified domestic relation orders have a few restrictions. One of the key limitations is that a QDRO cannot grant rights to a payee that are better than the rights enjoyed by the participant under the retirement plan’s conditions. Also, parts of the retirement plan that are already allocated to a previous payee by a QDRO cannot be given to an alternate payee. For instance, if a person has divorced twice and has two QDRO’s, the earliest QDRO takes priority.

How to File a QDRO

Firstly, the parties will draft the QDRO along with their attorneys and/or financial advisors. Next, a judge must sign off on the document. Lastly, the payee must deliver the QDRO to the administrator of the retirement plan. It can take up to 18 months for the administrator to respond to the parties.

Although federal law does not contain a specific deadline or time limit for filing a QDRO, it is recommended to start the process as soon as possible. Not only can it take a very long time to receive confirmation from the retirement plan’s administrator, but there are several other reasons why one should not wait to apply for a QDRO. The participating party may decide to liquidate their 401k or other similar account prior to the entry of a QDRO. Moreover, if there is no QDRO on file by the time a participant retires and starts collecting retirement benefits, the payee may not be able to claim his or her share. 

Bottom Line

The process of issuing a qualified domestic relations order is quite complicated, and retirement funds are considered much more complex to divide than other types of assets. It is highly advised to consult a family attorney in these cases. An experienced lawyer will make sure the QDRO is executed correctly and carefully to ensure the rights of both parties involved.

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