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What Is a QDRO (“Qua-dro”)?

What is a QDRO Freed Marcroft Connecticut divorce lawyersOne of the legal terms that judges and divorce lawyers tend to throw around is QRDO.  But what is a QDRO?

What Does QDRO stand for?

It’s an acronym for Qualified Domestic Relations Order.

How do you Pronounce QDRO?

In Connecticut, we tend to pronounce the acronym like it’s a word — “quadro” — rather than listing the letters — “Q-D-R-O.”

What Does a QDRO do?

There are all sorts of federal rules and regulations that govern the method for how employer-sponsored retirement plans are divided in a divorce.  According to the IRS, a QDRO is “a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant.”  Essentially, a QDRO is how you split the contents of a retirement fund between two divorcing spouses.

Who Needs a QDRO?

If you are splitting a 401(k), pension, or other qualified plan you will need to obtain a QDRO in order to access the funds without incurring a tax penalty. QDROs only apply to plans covered by ERISA.  Simply making a withdrawal from such a plan following divorce would trigger a tax event, including possibly a penalty. A QDRO avoids this problem.

What’s ERISA?

The Employee Retirement Income Security Act covers private sector pension and retirement plans.

What Is a “Qualified” Plan?

A qualified plan is simply one that is described in Section 401(a) of the Tax Code. In general, your contributions are not taxed until you withdraw money from the plan. The most common types of qualified plans are defined contribution plans (including 401(k)s), defined benefit plans (including pensions).  Most retirement plans that you obtain through your employer are qualified plans.

Do I need a QDRO to Transfer or Receive IRA funds?

No.  IRAs are divided using a process known as “transfer incident to divorce.”  As with a QDRO and qualified accounts, if the transfer incident to divorce is executed properly, no tax will be assessed on the transaction.

Will Freed Marcroft as My Divorce Attorney Prepare the QDRO?

No.  The rules that govern QDROs and retirement plans are complex and constantly changing.  In addition, they must be drafted to meet specific legal criteria for the particular plan it’s supposed to divide.

Experienced family law attorneys rarely prepare QDROs, and instead, outsource to QDRO attorneys.

What Happens After the QDRO is Prepared?

After the QDRO is prepared, it must be filed with the divorce court, who must approve it.  Then it will be sent to the “plan administrator” of the plan for review and approval.  Barring any issues, funds can be distributed.

How Long Does a QDRO Take?

Unfortunately, sometimes it can take many months between the drafting of the QDRO and transfer of funds. There are a lot of moving parts and approvals required from many different parties.

As there is no specific time limit that the directions in the QDRO must be carried out, it all depends on how quickly the lawyers, court, and particularly the administrator actually holding the funds complete their respective parts of the process.  Sometimes the QDRO attorney can give you some sense of a rough timeframe of a particular fund administrator if they have completed a QDRO for the same plan previously.

What Are My Next Steps?

Now that you have learned about QDROs, you may want to learn more about the factors that Connecticut courts consider when dividing retirement accounts.

Considering the level of complexity involved in dividing marital assets, it is vital to have experienced legal counsel on your side. There is a lot of opportunity for creative negotiations, strategy, and solutions.

Our first step at Freed Marcroft, the Goals & Planning Conference, is designed to get to the heart of your problem and unveil your true goals.  Then, we take those goals along with the facts of your case and analyze them so that we can present you with recommendations and options on how to move forward.

Schedule your Goals & Planning Conference today, or contact us either here or by phone at 860-560-8160.

Written by Meghan Freed