What In The World Is A QDRO?
The courts divide and confirm qualified private retirement benefits in much the same way they do marital property or community liabilities. There’s a discovery process followed by detailed characterization and valuation of the benefit plan, which then allows the court to divide everything in a just and right manner in the final judgement.
The key ingredient in allowing courts to assign any portion of a participant’s qualified retirement benefits to a former spouse is the presence of what’s called a Qualified Domestic Relations Order (QDRO). The QDRO (pronounced KWAH-droh) is an exception within the Employee Retirement Income Security Act. ERISA is designed to protect employees from squandering their benefits or putting themselves in a position where they can have those benefits seized by creditors.
So in essence, the QDRO allows for reassignment of benefits to a spouse in a divorce suit without violating ERISA.
Clear as mud? Here’s another key point to consider: A QDRO is essentially a domestic-relations order that becomes qualified. A DRO is any judgement, decree, order, or court-approved settlement that:
- Relates to the marital-property rights of a spouse
- Is made under a state’s domestic-relations law
- Contains certain statutorily required information
To become qualified, the DRO must be sent to the plan administrator, who is responsible for reviewing the DRO to determine whether it complies with ERISA and with any other rules the retirement plan has created to govern the assignment of benefits. If the DRO is qualified, it becomes a QDRO and the plan administrator will assign to the alternate payee the portion of the benefits that are awarded to him or her in the QDRO. If the DRO is not qualified, then the participant and the former spouse will have to fix the DRO and resubmit it for qualification.
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