The Qualified Domestic Relations Order (QDRO)
If you are dividing a retirement account in a divorce, you may need to have what is known as a QDRO, which stands for Qualified Domestic Relations Order. Matthew can explain more about QDROs in your mediation sessions, and he can assess whether you are likely to need one prepared. Here are Matthew's answers to some frequently asked questions about QDROs:
What is a QDRO? In non-technical terms, a QDRO is a document that is provides guidance to the administrator of a retirement plan concerning how to divide the account if one spouse will receive all or part of the other spouse's retirement account in a divorce. A QDRO is related to, but separate from, the divorce judgment.
What kinds of retirement plans require a QDRO? If you are dividing a 401(k), 403(b), or other similar retirement account, you will most likely need a QDRO. The reason is that the plan administrator (a company such as Fidelity, Vanguard, or perhaps your own company if it adminsters its own retirement plan without outsourcing it to another management company) has some discretion to determine that the circumstances are proper for the funds to be divided. Divorce is one of only a few events that can trigger a penalty-free transfer of a retirement account from one party to the other. Coupled with the fact that most retirement accounts contain tens of thousands -- and often hundreds of thousands -- of dollars, it makes sense that the plan administrator would take special care to ensure that the division was done appropriately and correctly.
If I have a 401(k), 403(b), or similar retirement account, will I automatically need a QDRO? No. A QDRO is necessary only if you are dividing or transferring all or part of that type of retirement account to the other spouse as a condition of your divorce. If your property division is arranged such that neither party is to receive a share of the other party's retirement account, there is nothing to transfer or divide, and therefore there is no need for a QDRO. If it is possible to divide your assets in a way that does not require splitting or transferring those types of accounts, you and your spouse will save yourselves time and potentially money by not needing a QDRO.
What kinds of retirement plans do not require a QDRO? Most traditional Individual Retirement Accounts (IRAs) and Roth IRAs do not require a QDRO.
What is involved in preparing a QDRO? A QDRO is one form or a short set of forms that stipulate the details of the division or transfer of the plan. In Matthew's opinion, a QDRO is an unnecessary concept, but it is required by law. Your Mediation Report and the divorce judgment will already contain all of the information that the QDRO will require, such as the names and addresses of the parties, the marriage date, the amount to be divided, and other related information. The QDRO is prepared according to a template or a list of requirements published by the retirement plan administrator. Your Human Resources department should be able to provide you with a list of the requirements or, even better, a template to complete. Whether you or an attorney prepares the QDRO, the plan administrator will review it to be sure it meets the plan requirements. It is then submitted to the court and signed by the same judge who signed your divorce judgment. Then, the plan administrator is authorized to divide or transfer all or part of the retirement account accordingly.
Is the QDRO prepared by the mediator? No, but the relevant information will be included in the divorce judgment and those facts can be transferred to the QDRO when it is prepared. You may either complete the QDRO yourself or you may have an attorney do so. Matthew can refer you to an attorney specializing in QDRO preparation.
What does a QDRO cost? Even if you do the QDRO without paid assistance, the plan administrator will often charge a fee of perhaps $350 or thereabouts to process the QDRO and do the division or transfer of the account. That fee is usually unavoidable. The preparation of the QDRO itself can cost $500 to $750 to have it done by an attorney (or whatever the chosen attorney's regular rate is). There are online services that purport to create QDROs. They are often more economical than hiring an attorney, and many say that they guarantee that the document will be accepted by the court, but there is often less accountability for the results. If you choose to use an online service, be aware that you do so at your own risk.
How can I avoid having to deal with a QDRO? The easiest way to prevent needing a QDRO is to structure your property division so that an account for which a QDRO would be required will not be divided or transferred. If it is possible to divide your assets so that both of you leave the marriage with approximately the same value of property, it is not required that each party must receive half or a portion of every asset. The total is much more important than the individual items. For example, one spouse could get more cash or home equity in exchange for not getting a share of the other spouse's 401(k) or 403(b). Also, if the parties want to divide or transfer retirement accounts while still avoiding a QDRO, another way to do so is by dividing or transferring a traditional IRA or a Roth IRA, which do not require a QDRO. One additional option is for one spouse to borrow money from his or her retirement account and transfer it to the other spouse as cash.
A QDRO may seem complicated, but it really is more straightforward than it may first appear. Matthew will discuss it with you further in your divorce mediation sessions.
What is a QDRO? In non-technical terms, a QDRO is a document that is provides guidance to the administrator of a retirement plan concerning how to divide the account if one spouse will receive all or part of the other spouse's retirement account in a divorce. A QDRO is related to, but separate from, the divorce judgment.
What kinds of retirement plans require a QDRO? If you are dividing a 401(k), 403(b), or other similar retirement account, you will most likely need a QDRO. The reason is that the plan administrator (a company such as Fidelity, Vanguard, or perhaps your own company if it adminsters its own retirement plan without outsourcing it to another management company) has some discretion to determine that the circumstances are proper for the funds to be divided. Divorce is one of only a few events that can trigger a penalty-free transfer of a retirement account from one party to the other. Coupled with the fact that most retirement accounts contain tens of thousands -- and often hundreds of thousands -- of dollars, it makes sense that the plan administrator would take special care to ensure that the division was done appropriately and correctly.
If I have a 401(k), 403(b), or similar retirement account, will I automatically need a QDRO? No. A QDRO is necessary only if you are dividing or transferring all or part of that type of retirement account to the other spouse as a condition of your divorce. If your property division is arranged such that neither party is to receive a share of the other party's retirement account, there is nothing to transfer or divide, and therefore there is no need for a QDRO. If it is possible to divide your assets in a way that does not require splitting or transferring those types of accounts, you and your spouse will save yourselves time and potentially money by not needing a QDRO.
What kinds of retirement plans do not require a QDRO? Most traditional Individual Retirement Accounts (IRAs) and Roth IRAs do not require a QDRO.
What is involved in preparing a QDRO? A QDRO is one form or a short set of forms that stipulate the details of the division or transfer of the plan. In Matthew's opinion, a QDRO is an unnecessary concept, but it is required by law. Your Mediation Report and the divorce judgment will already contain all of the information that the QDRO will require, such as the names and addresses of the parties, the marriage date, the amount to be divided, and other related information. The QDRO is prepared according to a template or a list of requirements published by the retirement plan administrator. Your Human Resources department should be able to provide you with a list of the requirements or, even better, a template to complete. Whether you or an attorney prepares the QDRO, the plan administrator will review it to be sure it meets the plan requirements. It is then submitted to the court and signed by the same judge who signed your divorce judgment. Then, the plan administrator is authorized to divide or transfer all or part of the retirement account accordingly.
Is the QDRO prepared by the mediator? No, but the relevant information will be included in the divorce judgment and those facts can be transferred to the QDRO when it is prepared. You may either complete the QDRO yourself or you may have an attorney do so. Matthew can refer you to an attorney specializing in QDRO preparation.
What does a QDRO cost? Even if you do the QDRO without paid assistance, the plan administrator will often charge a fee of perhaps $350 or thereabouts to process the QDRO and do the division or transfer of the account. That fee is usually unavoidable. The preparation of the QDRO itself can cost $500 to $750 to have it done by an attorney (or whatever the chosen attorney's regular rate is). There are online services that purport to create QDROs. They are often more economical than hiring an attorney, and many say that they guarantee that the document will be accepted by the court, but there is often less accountability for the results. If you choose to use an online service, be aware that you do so at your own risk.
How can I avoid having to deal with a QDRO? The easiest way to prevent needing a QDRO is to structure your property division so that an account for which a QDRO would be required will not be divided or transferred. If it is possible to divide your assets so that both of you leave the marriage with approximately the same value of property, it is not required that each party must receive half or a portion of every asset. The total is much more important than the individual items. For example, one spouse could get more cash or home equity in exchange for not getting a share of the other spouse's 401(k) or 403(b). Also, if the parties want to divide or transfer retirement accounts while still avoiding a QDRO, another way to do so is by dividing or transferring a traditional IRA or a Roth IRA, which do not require a QDRO. One additional option is for one spouse to borrow money from his or her retirement account and transfer it to the other spouse as cash.
A QDRO may seem complicated, but it really is more straightforward than it may first appear. Matthew will discuss it with you further in your divorce mediation sessions.