QDROs: What You Need to Know

In many marriages, the retirement accounts that the spouses own are some of the largest financial assets in their portfolio. When the couple divorces, numerous questions arise as to how to equitably split up the retirement accounts and, in fact, whether it can be done at all.

The answer is that the retirement accounts can be equitably divided up, and the solution is an acronym known as QDRO (Qualified Domestic Relations Order). A QDRO is an order for the equitable division of 401(k) plans, pensions, and other retirement accounts. A QDRO allows a retirement plan administrator to make payments to the former spouse of an employee according to the parties’ marital settlement agreement.

Because many mistakes are made using QDROs, here is a best practices checklist:

• Volunteer to draft the QDRO.  A common mistake is having both parties jointly draft the document, but a QDRO isn’t a neutral document.  It is drafted to benefit one side, so make sure that your side benefits.

• Find out how the plan operates.  Because retirement plans differ greatly from one another, it’s important to figure out exactly how the plan at issue operates.  This information needs to be figured out during the negotiation process before you sign an agreement. For example, some plans may have early retirement buy-outs and other plans may be non-qualified plans that cannot be divided at all.  This is information you need to know while negotiating in order to make an effective deal.

• Be proactive.  It’s best to have the QDRO entered simultaneously with the divorce judgment.  If that’s not possible, have the QDRO prepared shortly thereafter.

• Don’t rely on the employer.  The sample QDRO that your employer provides is meant to be a guide and will only let you know the basic language to include. However, many employer documents leave out key provisions that should be included for your protection, so have a specialist draft your QDRO.

• Include a valuation date.  By inserting a valuation date (such as the date of separation or the date the final judgment is entered) into your agreement, you will avoid disputes if an account increases or decreases in value.

If your spouse has large retirement accounts and you have none, don’t worry because you can have a QDRO and an experienced Brentwood divorce attorney on your side to get you the fair share you deserve.