By Gregory N. Hoffman and Rui P. Alves
What is a Qualified Domestic Relations Order, also known as a QDRO?
The Internal Revenue Service (“IRS”) defines a QDRO as a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant. QDROs are used to divide retirement plans that fall under the Employee Retirement Income Security Act of 1974, commonly known as ERISA.
Who are Parties to a QDRO?
In order to fully under QDROs and the important role they play in divorce proceedings, it is necessary to understand the terms used to identify the parties. The spouse or former spouse who owns the plan is referred to as the participant. The non-employee spouse or former spouse is referred to as the alternate payee.
Why are QDROs Important?
QDROs allow a spouse or former spouse to receive certain retirement assets from a retirement plan as if he or she were a plan participant. Importantly, QDROs allow for the transfer of all or a portion of a qualified retirement asset to be transferred without either spouse incurring tax penalties or early withdrawal fees.
Information Necessary for QDRO
QDROs are highly complex and require certain information in order to transfer retirement assets. While every retirement plan has different rules and procedures that governing the transfer of assets, every QDRO must contain the personal information of the participant and alternate payee, the name of the plan(s) being divided and the amount, percent, or method for calculating the amount to be transferred to the alternate payee.
Common Pitfalls with QDROS
Due to the technical and complex nature of QDROs, certain common mistakes can occur including failure to accurately identify the retirement plan to be divided, attempting to divide a plan that is not governed by ERISA, failing to address investment experience (i.e. gains and losses until the date of division), failing to account for a loan balance on a defined contribution plan and failing to fully consider the tax implications from division. To avoid these common pitfalls, plan participants as well as alternate payees should consult with an experienced attorney and tax professional.
Gregory N. Hoffman focuses his practice on complex family law, criminal law, general civil litigation and probate matters. He actively practices in the courts of Massachusetts and Rhode Island litigating cases such as divorce, child custody, child support, domestic violence, criminal defense and personal injury. In addition, Greg devotes a significant amount of time developing comprehensive and cost-effective solutions in the drafting of a variety of domestic relations agreements such as Separation Agreements, Marital Settlement Agreements and Antenuptial Agreements.
Rui P. Alves is an experienced Rhode Island and Massachusetts litigator and advocate in family law, criminal law and government relations matters in both state and federal court. Rui concentrates his practice on helping individuals and corporations craft solutions for complex issues related to domestic relations, criminal defense and government affairs.