You or your spouse’s retirement or pension plan could represent a large share of your assets. Dividing retirement or pension benefits could become one of the most contested parts of your divorce , domestic partnership dissolution , child support case , or alimony negotiations .
Deferred sources of income like retirement accounts and pension plans can either be divided in kind or by cashing out one spouse’s share at the time of your divorce.
- With cash-out division, you appraise the present market value of the investment or pension, usually with the help of a forensic accountant. The non-employee spouse can get a cash payout or another asset of equal value in place of their share. The employee spouse can then keep their pension or retirement benefits in full.
- With in-kind division, both spouses get paid out from the retirement or pension plan as it matures. With this method, you can avoid complicated calculations of present-day value. You can also benefit from the retirement or pension plan rising in value by the time it matures. But the issue with in-kind division becomes enforcement.
When you cash out your interest in your spouse’s retirement or pension plan, you get all of the value at once and you conclude the transaction. When you choose to split the retirement account or pension in kind, your financial arrangement remains in place for potentially years.
How do you make sure you keep getting your share of the asset? This is where Qualified Domestic Relation Orders (QDROs) come in, allowing you to get your share of the payout directly from the pension plan or retirement account.
What Is a “Qualified Domestic Relationship”?
A Qualified Domestic Relation Order (QDRO) could apply to you if you have a judgment, decree, property settlement, or order involving a spouse, former spouse, domestic partner, former domestic partner, child, or dependent. This includes divorce and domestic partnership judgments and settlements, child custody and support orders, and spousal support orders .
QDROs follow state laws when it comes to domestic relationships. California has no common law marriage, which means you cannot get these benefits if you lived together but were not actually married. Nonmarital couples must be registered domestic partners to benefit.
Because married same-sex couples and domestic partnerships are treated the same under federal tax laws, they get the same marital rights in pension and retirement plans .
QDROs can apply to qualified pension plans, profit-sharing and retirement plans in the private sector, government plans, deferred government compensation, and church plans.
With a QDRO, a former spouse can be treated like a surviving spouse. You can continue to receive benefits from your former spouse’s retirement or pension plan even if they pass away .
Who Is Responsible for Filing a QDRO After Divorce?
Essentially, a QDRO is a legal recognition of an “alternate payee’s” right to benefit from “qualified plans” such as retirement plans, 401(k)s, and pension plans.
Once the law formally recognizes that you have a legal claim to a portion of your spouse’s retirement or pension plan , a QDRO helps enforce your right to the payout from that plan. But you need an actual court order, judgment, or decree to file a QDRO.
The responsibility of filing a QDRO falls on the beneficiary receiving a portion of the plan – i.e., the spouse getting an in-kind share must file a QDRO to get its benefit.
What does a QDRO do exactly? Once your QDRO is granted, you can get paid directly from the retirement plan or pension plan, rather than getting paid through your ex-spouse. As an “alternate payee,” you function as the direct beneficiary for your portion of the asset. But you must wait until the plan’s benefits actually mature before you can get a payout.
Can You Get a QDRO Without a Divorce?
Yes. Divorce isn’t the only context where QDROs can help, although they are common in divorce, domestic dissolution, and spousal support cases. A QDRO can also arrange in-kind payments from pension and retirement plans to cover child support.
How Do You File for a QDRO in California?
Before you file for a QDRO, you must first have a judgment, decree, or court order establishing your rights in a domestic situation. This could be a divorce decree, domestic partnership dissolution decree, child custody order, child support order, or spousal support order.
In your QDRO filing, you must include:
- Names and addresses for the plan participant and the alternate payee,
- The amount or percentage of the benefits to be paid to the alternate payee,
- The number of payments to be made or the length of the payment period, and
- Identification of all the retirement and pension plans that fall under the order.
You do not have to file for a QDRO immediately after you gain an ownership interest in a retirement or pension plan – or even immediately when the plan matures and becomes payable.
However, the sooner you file for a QDRO, the better you can protect your rights. For example, if you wait to file your QDRO until after your spouse passes away, you risk the retirement plan having no more benefits to pay out. This could happen if a subsequent spouse gets paid all the plan’s surviving spouse benefits before you file your QDRO .
You can file a QDRO as soon as your spouse reaches the “earliest retirement age” for their plan. This is called a Gillmore election, where you can start getting paid benefits from the retirement or pension plan even if your spouse refuses to retire and remains employed.
Do You Need a Lawyer to File a QDRO?
Filing a QDRO may sound simple enough. You may even find companies or employers who offer QDRO templates. But if you want to get the most out of your share of the retirement plan, you should work with a family or divorce attorney who can address every contingency.
This is because a QDRO is not a neutral document. A QDRO is a legal document executing your rights. You need someone who is advocating for you to draft the QDRO so that you don’t accidentally leave benefits on the table. Your family lawyer will make sure that the amount or percentage of benefits you get under the QDRO accurately reflects your fair share.