Qualified Domestic Relations Orders (QDRO)

It is true that many attorneys dread using QDRO’s as a settlement tool but they are missing the opportunity to use the most flexible and valuable dissolution tool in their kit. QDRO’s are plan specific and boiler-plate rarely works.

In many cases the QDRO is the only way the parties can get access to available cash to pay marital debt (including attorney fees). However the attorney can’t be paid directly by the plan.

There are two types of QDRO’s and many permutations of these two types. There are QDRO’s that address a pension plan if the participant is retired and receiving benefits or if the participant is still working, won’t commence to pay the alternate payee’s share until some time in the future. There are QDRO’s that address Defined Contribution Plans (401(k), Retirement Savings Plans, etc.) which will pay out the alternate payee’s share immediately. With some creative accounting, to include the taxes that will be due upon an immediate receipt, with a Defined Contribution Plan QDRO, the marital debts can be retired and the attorneys paid.

Taxes on Defined Contribution Plans can be deferred and no penalties paid if the Order is structured correctly. Neither party will have an immediate tax liability nor will the taxes owed by the alternate payee be deferred until he/she is in a lower tax bracket. This is accomplished by use of a trustee-to-trustee transfer and by rolling the alternate payee’s funds into another retirement account.

QDRO’s involving pensions are much trickier and many more things must be considered. The formula used to identify the alternate payee’s share can reward or punish him/her. Survivor benefits are critical. Supplemented early retirement benefits must be included. Passive post retirement increases must be addressed. How the funds are to be paid in the event of the death of the alternate payee can be a factor.

Where attorneys get in trouble in this area is to fail to address all the contingencies and meet the plan guidelines. If it is not spelled out in the property settlement agreement or the separation agreement it can not be included in the QDRO! If you are not sure of all the many components that must be addressed in a QDRO addressing pension rights, use an expert to draft the retirement benefit paragraphs of the settlement agreement. We charge $500.00 for preparation of a QDRO ($350.00 for a second QDRO in the same case). We now charge no fee whatsoever to assist our attorney clients in drafting settlement language.  Properly stated distribution terms will ultimately allow LawDATA to better serve our clients.