One of the biggest assets in a marital estate is a party’s retirement plan or pension.
In a California divorce, all assets of the marriage, including retirement plans, will be divided. The non-participant spouse is entitled to receive a portion of the retirement plan that was accrued throughout the marriage. The division of the retirement plan assets is documented through a court-ordered QDRO.
Once the division of the retirement plan has been agreed upon or ordered by the court, a Qualified Domestic Relations Order (QDRO) is the specific order of the court directing the retirement plan to assign or pay an amount, a percentage, or a portion of a retirement plan to a person other than the plan participant, such as a former spouse or a dependent.
Although QDROs are most frequently used in divorce cases to divide the community property portion of a retirement plan, QDROs may be used to pay child support or spousal support to a spouse, former spouse, child, or other dependent of the plan participant.
Not all retirement plans require a QDRO. An Individual Retirement Account (IRA) can usually be divided by a rollover through the financial institution.
However, retirement plans such as 401(k) plans, 403(b) plans, 457 plans, employee stock ownership plans, and defined benefit plans do require a QDRO. The language dividing the retirement plan is not sufficient to meet the requirements for a plan to divide up a retirement plan incident to a divorce.
Once the division of the retirement plan has been agreed upon by the parties or decided by the court, it is imperative that you file a QDRO as soon as possible.
A QDRO is a separate order from the Judgment or the Marital Settlement Agreement. The QDRO is the document that notifies and instructs a retirement plan on how the assets in the plan or the benefits of the plan, will be divided. The QDRO helps ensure that both parties get equal shares (or the agreed upon portion) of money or benefits from the retirement plan that were accumulated during the marriage.
Without a QDRO, the retirement plan may not even be aware that a divorce occurred or that a former spouse is to receive a portion or percentage of the plan, or plan benefits.
If the retirement is not aware of the divorce or court orders, then the retirement plan might unknowingly pay all monies or benefits to the plan participant without allocating any funds or benefits to the former spouse.
Even worse, if the participating spouse were to die before the QDRO is completed, the former spouse may not be able to recover her or his share of the retirement plan.
The retirement plan may allow for different options as to how a nonparticipating party’s share of the retirement plan is distributed. Each retirement plan is different, and the QDRO needs to be tailored to comply with the retirement plan’s rules and distribution options.
Distribution options may include:
QDROs are complicated. Contact Cage & Miles to work with our team of experienced family law attorneys. We will help you navigate the QRDO process to prevent any costly mistakes.