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Understanding Qualified Domestic Relations Orders for Division of Retirement Accounts

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When a divorce settlement is final, the legal document known as the Martial Settlement Agreement will detail how a divorced couple’s marital assets will be divided. This includes all substantial property, including retirement plans. In order for the division of a retirement account to take place there may be the need for a legal mechanism, referred to as a Qualified Domestic Relations Order or QDRO (pronounced “quad row”).

What is a QDRO?

Simply put, a QDRO is a court order which recognizes an alternate payee’s ownership of a portion of an employee benefit or pension plan subject to ERISA (Employment Retirement Income Security Act), a federal law dating back to 1974 that provides structure for the types of retirement accounts available to employees.

Preparation of a QDRO is a multi-step process, and it is important that it be prepared properly. When seeking a divorce attorney, include questions about experience completing QDROs, what the office’s process is, and the approximate cost.

The initial step is to gather all pertinent information to the plan or plans being divided or equalized. This includes statements of balance of the accounts as of an agreed upon date (most often the date of entry of the judgment), and obtaining a copy of the Summary Plan Description from the employer.

Preparation of a QDRO

Some attorneys’ offices prepare QDROs for their clients in-house, while others may contract with a company that specializes in their preparation. In either case, the content of the QDRO will be carefully prepared and reviewed to insure that it details the proper division of benefits and has all of the parties’ personal information correct. At this stage in the process, the document is a Domestic Relations Order (DRO). Once the paperwork is completed, it is submitted to the administrator of the retirement plan for approval that it is a Qualified Domestic Relations Order, or QDRO.

Approval by the plan administrator is the longest part of the process. The DRO will be reviewed to be sure that it meets the requirements of the plan it pertains to. If it does not for any reason, it will be edited based upon the plan administrator’s recommendation. If the DRO meets the plan’s requirements, the plan administrator will issue a letter to all parties informing them that it is a QDRO. This step can sometimes take as long as six weeks even without the need for a redraft.

The final draft will be issued and both attorneys will sign off on the QDRO, and then it will be scheduled for presentment to the court and presented to the judge for signature. It will then be filed with the Clerk of the Court, and certified copies can then be purchased. Finally, a certified copy of the QDRO is sent to the plan administrator to be implemented. Does a QDRO Apply to my Retirement Account?

It is important to note that not all retirement accounts and pension plans require a QDRO. Only private sector retirement accounts and pension plans that are covered under ERISA require a QDRO. In Illinois, public sector (ie. firefighters, police and teachers) employees’ retirement accounts are instead divided by a Qualified Illinois Domestic Relations Order (QILDRO) which has separate requirements and is more restrictive than a QDRO. QDROs are also not available for government or military retirement accounts, but these are divided by a similar document.

The proper division of retirement and investment accounts is an important final step in a divorce. QDRO paperwork should be completed with accuracy and the process streamlined to avoid unnecessary lost time and expense. It is important when you have retirement accounts to be divided, that you to work with a divorce attorney who has experience with the type of retirement account to which you contribute through your employer.

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