What are Qualified Domestic Relations Orders and How Are They Used in Divorce Cases?

Documents about qualified domestic relations order QDRO.

Retirement benefits are often some of the most substantial assets held by a married couple. In the event of divorce, retirement assets acquired during the course of the marriage may be subject to division under North Dakota’s equitable distribution laws. Since the assets held in an employer-sponsored plan can be complicated and costly to divide, a Qualified Domestic Relations Order (QDRO) may be used to establish a spouse’s share. Importantly, federal law does not permit a participant to assign their interest in a 401(k) or retirement plan covered by ERISA to anyone else without this order.  

What is a Qualified Domestic Relations Order (QDRO)?

A Qualified Domestic Relations Order, commonly referred to as a QDRO, is prepared as part of and subsequent to a divorce judgment.They are court orders, entered after but related and referred to in the Judgment and Decree.  A QDRO grants a spouse the right to a portion of the retirement benefits earned by the other spouse through their participation in an employer-sponsored retirement plan or defined benefit pension. In some cases, a QDRO may also be used to award spousal support or child support.

Cashing out retirement funds early can often result in steep financial consequences, withdrawal penalties, and higher tax rates. With a QDRO, a participant would not be subject to a 10 percent early withdrawal tax penalty for assigning the assets. A QDRO can also allow a party to make an equalization payment from their retirement account without incurring this penalty. However, tax consequences would still be passed along with the benefits to the participant’s former spouse — in other words, when the spouse receives their distribution, they would be responsible for paying the income tax associated with it.

How Do Qualified Domestic Relations Orders Work?

A QDRO splits a retirement plan or pension in divorce by recognizing joint ownership of the assets. It guarantees that more than one person will receive the retirement benefits by allowing a former spouse, child, or other dependent to receive a portion of the assets. A QDRO recognizes an individual other than the plan participant who has the right to receive a share of the benefits as an "alternate payee." But the QDRO itself is not a cash payout — rather, it is the formal way of dividing a retirement account.  

Notably, there is a distinction between a "domestic relations order" and a "qualified domestic relations order.” Any court can issue a domestic relations order, but the order will only become “qualified” once it is accepted by the plan. Upon receipt of an order purporting to be a QDRO, the plan's administrator will decide whether it is "qualified" and create a separate account for the alternate payee. Every plan has specific procedures for determining whether a domestic relations order is "qualified" for its purposes. 

When is a Qualified Domestic Relations Order Needed?

A QDRO isn’t needed for dividing all types of retirement accounts. For instance, a QDRO isn’t necessary to divide Individual Retirement Accounts (IRAs) or deferred annuities. While certain language should be included in a divorce judgment to address division of these assets, a QDRO only applies to company retirement plans such as 401(k), 403(b), or similar retirement plans. QDROs are also usually needed to divide 457 plans, employee stock ownership plans, and private pension plans.                     

Although the division of marital property in divorce is governed by state law, a QDRO must also comply with various federal statutes, including the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code).

What are the Requirements of a Qualified Domestic Relations Order?

Before a QDRO is submitted to the court to be signed by a judge, it should be reviewed by the retirement plan’s administrators. This can help to ensure it complies with the terms of the plan, ERISA, the IRS Code, the company’s requirements, and any other applicable laws or regulations. The rules for QDROs are highly nuanced and each plan has its own unique rules as to how the order should be drafted. 

In lieu of or to avoid having a plan administrator review the QDRO after it is drafted, which can be at additional cost, many plan administrators have sample QDROs or information sheets that participants can give to their attorneys for use in drafting a QDRO that will be acceptable to both the plan administrator and the court. It is always advisable to request such a sample/form from the participant spouse’s plan administrator, when possible, to assist in the drafting of a QDRO that will be accepted by the plan administrator.   

In addition, the plan administrator will also be required to notify the plan participant once the order is received and must provide copies of the procedures used to determine whether the order is "qualified.”

While each plan is different, every QDRO must contain basic information, including the following:

  • The name and last known mailing address of the participant
  • The name and last known mailing address of each alternate payee
  • The name of each plan to which the order applies
  • The dollar amount or percentage of benefit to be paid to the alternate payee
  • The number of payments or the duration of the QDRO 

Critically, a QDRO cannot require a plan to confer any type of benefit that is not provided under the plan or provide for increased benefits. It also cannot require a plan to pay benefits to one payee that are meant to be paid to another alternate payee under a different QDRO. In addition, a QDRO is prohibited from mandating that benefits be paid in the form of an annuity for the lifetime of the alternate payee.

Contact an Experienced Fargo Divorce Attorney

Dividing property in divorce can be challenging — especially when it comes to splitting up complex assets such as retirement accounts. It’s essential to have a skilled divorce and family law attorney who can help you navigate the legal process.. We welcome you to contact us online or by calling (701) 478-7620 to learn how we can assist you.