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What Can a QDRO Be Used For?

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QDRO and divorce

Question: What Can QDRO Be Used For?

Answer:

QDRO or Qualified Domestic Relations Order is a court order that recognizes the right of the ex - spouse to receive all or part of a pension plan that belonged to their ex – spouse.

The QDRO can be used for:

Certain situations have to be met for the QDRO to be valid.

  • QDROs are subject to ERISA (Employee Retirement Income Security Act) requirements.
  • The QDRO must be issued by a state authority, usually a state court through a judgment, court order or divorce decree, which addresses a marital property settlement.
  • The validity of the QDRO must follow certain guidelines set up by the pension plan administrator. Not all court orders are considered qualified domestic relations orders. The plan administrator will make the decision as to whether or not the QDRO qualifies.

Dividing Retirement Benefits During Divorce:

Orders that seek to divide a retirement benefit as part of the marital property upon divorce or legal separation often take a different approach to dividing the retirement benefit. These orders usually divide the participant's retirement benefit (rather than just the payments) into two separate portions with the intent of giving the alternate payee a separate right to receive a portion of the retirement benefit to be paid at a time and in a form different from that chosen by the participant. This approach to dividing a retirement benefit is often called the "separate interest" approach.

An order that provides for a separate interest for the alternate payee must specify the amount or percentage of the participant's retirement benefit to be assigned to the alternate payee (or the manner in which such amount or percentage is to be determined). The order must also specify the number of payments or period to which it applies, and such orders often satisfy this requirement simply by giving the alternate payee the right that the participant would have had under the plan to elect the form of benefit payment and the time at which the separate interest will be paid. Such an order would satisfy the requirements to be a QDRO.

Federal law does not require the use of either approach for any specific domestic relations purpose, and it is up to the drafters of any order to determine how best to achieve the purposes for which retirement benefits are being divided. Further, the shared payment approach and the separate interest approach can each be used for either defined benefit or defined contribution plans. However, it is important in drafting any order to understand and follow the terms of the plan. An order that would require a plan to provide increased benefits (determined on an actuarial basis) or to provide a type or form of benefit, or an option, not otherwise available under the plan cannot be a QDRO.

In addition to determining whether or how to divide the retirement benefit, it is important to consider whether or not to give the alternate payee a right to survivor benefits or any other benefits payable under the plan.

Follow this link for more information about qualifying status and how benefits are paid.

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