When couples get divorced, their assets are usually divided, but that split doesn’t automatically extend to retirement plans, which is where a qualified domestic relations order (QDRO) can come into play. Depending on the type of retirement plan in question, different rules apply for divvying up the assets. A process called “transfer incident to divorce” is used for IRAs. QDROs are used for 403(b)s and qualified plans, such as a 401(k). (For more, see Divorcing? The Right Way to Split Retirement Plans.)
What’s a QDRO?
A QDRO is a court order used to divide specific types of retirement plans, including qualified and 403(b) plans. According to the Internal Revenue Service, a QDRO is “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 [retirement plan] participant.”
A QDRO grants a person known as the “alternate payee” the right to part of the retirement benefits a former spouse (the “participant”) earned through an employer-sponsored retirement plan. While a QDRO provides benefits to an alternate payee when the participant is alive, it can also award survivor benefits if the participant dies. (For more, see How to Manage Your Finances Through a Divorce.)
What’s Included in a QDRO?
While there are hundreds of thousands of private retirement plans in the U.S., each has its own rules for what information needs to be included in a QDRO. At a minimum all QDROs must include:
- the name and last known mailing address of the participant and alternate payee(s)
- the dollar amount or percentage of the participant’s benefits that will be paid to the alternate payee(s) (Note: A QDRO can’t award an amount or form of benefit that’s not available under the plan.)
Getting a QDRO
During divorce proceedings both parties will identify the assets that need to be divided, including retirement plans. If you’re awarded part of your former spouse’s retirement account (either through a property settlement or via a judge), the court will issue a QDRO that may have been drafted by your divorce attorney. The QDRO is then submitted directly to your former spouse’s retirement or pension plan administrator. The plan should let you know soon if the QDRO has been accepted; if not, the plan must provide a clear explanation for why it was rejected as well as the steps you need to take to get it approved. (For more, see Divorce Planning Checklist: What You Need to Know.)
While it’s possible to get a QDRO after a divorce decree is issued, it’s always better to take care of it as early as possible – ideally, of course, before the divorce has been finalized. If you wait to obtain a QDRO, you may have to reopen the divorce to get rights to the participant’s retirement benefits, and that can be a costly and time-consuming task. In addition, if the participant retires after the divorce is settled – and no QDRO has been filed with the plan – the participant will already be receiving benefits, in which case it may be too late to file a QDRO. Finally, if your former spouse dies before you obtain a QDRO, it may be impossible to receive any benefits.
The Bottom Line
If you’re getting a divorce and your soon-to-be-ex-spouse has a retirement plan, be sure to ask the court as soon as possible for a QDRO, so you can receive your share of the benefits. While this seems easy enough, it can be difficult to remember during an emotionally charged divorce, especially if retirement is years or decades away.
It’s important to keep in mind that you won’t automatically get a QDRO, even if your spouse has a considerable retirement account. Instead, you have to ask for one as part of your property settlement agreement. Make sure your attorney knows that retirement assets are at stake and that you want a QDRO. If you’re representing yourself, notify the court that your spouse earned a retirement benefit so it can include the benefit when dividing property.