A Qualified domestic relations order
is a legal order subsequent to a divorce
or legal separation that splits and changes ownership of a retirement plan
to give the divorced spouse their share of the asset or pension
plan. QDROs may grant ownership in the participant's (employee's) pension plan to an alternate payee, who must be a spouse, former spouse, child or other dependent of the participant. A QDRO may provide for marital or community property division between the participant and the alternate payee, or for the payment of alimony or child support to the alternate payee. QDROs apply only to employee benefit or pension plans subject to ERISA
, the Employee Retirement Income Security Act, the American law governing private sector pensions. Comparable types of orders are available to divide military retirement pay and Federal civil service retirement plans, and for State, county and municipal retirement plans in most States. QDROs must first be entered by the State domestic relations court and then reviewed by the plan administrator for compliance with ERISA
or other applicable law and the terms of the plan.
Distribution of funds held as pre-tax contributions in a pension Plan (I.R.A., Keogh, 401(k), etc.) pursuant to an equitable distribution award or stipulation may require a single-purpose Order, called a QDRO (Qualified Domestic Relations Order).
Agreements providing for distribution of pension (or any marital asset) must be signed and acknowledged by the parties themselves (as opposed to by the attorneys).
Value of the distributive award
There are several methods of determining the value of each party’s share of the fund. One of the relevant factors is whether or not the participant was already enrolled in the Plan prior to the marriage.
If Plan participation post-dates the marriage, each party’s share is (usually) 50%* of the fund’s value as of the date of the commencement of the divorce action, execution of a stipulation of settlement agreeing to the distribution, or entry of the divorce judgment (whichever date is earliest).
If Plan participation pre-dates the marriage, the usual method in New York State (others may be similar) is the “Majauskas” formula (Majauskas v. Majauskas, 61 NY2d 481, 491-492). A distributive ratio is established by dividing the duration of Plan participation (in months) by the duration of the marriage only while a member of said plan (in months). Both terms end as of the date of the commencement of the divorce action, execution of a stipulation of settlement agreeing to the distribution, or entry of the divorce judgment (whichever date is earliest, as above). The non-participating party’s share is (usually) 50% of the resultant fraction of the fund, the balance being retained by the participant.
Requirements for the Order
The proposed (un-signed) Order must comply with three general sets of rules:
- State domestic relations law. Requirements may vary widely by state. For example, in New York: DRL §236; the distribution must be “equitable” (fair).
- U.S. tax code; preservation of the tax deferred status of the funds is the responsibility of the movant.
- The Employee Retirement Income Security Act (ERISA) contains requirements that are essentially parallel to those in the Code. Among such requirements is that the method of distribution must be selected from among the options available to the Participant, according to the terms of the Plan. The participant may not order the Plan to distribute the money in a manner not consistent with the Plan's terms.
All QDROs must contain certain data:
- Full Name, and Last Known Mailing Address of the Participant, Employee or Contributor (also referred to as the "Payee" or "Distributee"), and Spouse (or "Alternate Payee", etc.)
- Social Security Numbers of both Parties
- Formal name of the Plan
- Participant’s Plan Identification Number (if different from the Participant’s Social Security number)
- The amount payable Alternate Payee, or the method to be used to calculate such amount
- For a defined benefit plan, the duration the benefits are payable to the Alternate Payee
- http://www.dol.gov/ebsa/publications/qdros.html - Extensive information from the Department of Labor
- http://www.qocenter.com - Website from Hewitt Associates - where QDRO and QMCSO orders can be created