11 Jan What is a Qualified Domestic Relations Order (QDRO)?
A qualified domestic relations order (“QDRO”) is a domestic relations order that should be included in a divorce proceeding, typically when dealing with pension funds.
A QDRO will allow for the transfer of value of certain investments while enabling the recipient to continue to postpone taxes on the investment until the funds are withdrawn for use.
Here are answers to a few questions you might have, and some issues that you might be thinking about.
What happens if you don’t have a QDRO?
If this happens, then the money is treated as a taxable distribution to you. This essentially means that you owe the IRS for money that will end up in your ex-spouse’s pocket, which isn’t something you want to deal with. Your ex-spouse will love this because it’s tax-free and will probably be at your expense. On top of this, you might also get stuck with the 10% premature withdrawal penalty if you are under age 59 and a half. None of this is something that you really want.
However, if you are having financial problems and need some money to live off of right now, you can request to have the funds transferred from your spouse’s retirement plan directly to you, rather than having them put in an IRA. You will need to pay tax on the money you receive, but the good news is that there won’t be any 10% penalty if the money comes from a retirement plan other than the IRA.
What information do I need to have in order to file for a QDRO?
You will need to have:
- Your name and mailing address and the name and mailing address for your ex;
- Each qualified retirement plan;
- The dollar amount of the benefits to be paid from each account;
- The number of payments or benefits covered by the QDRO;
- The correct documentation for the QDRO
Who determines whether an order is a proper QDRO?
Under Federal law, the administrator of the retirement plan that provides the benefits affected by an order is responsible for determining whether a domestic relations order is a proper QDRO.
The administrators who decide about QDRO have specific responsibilities and need to meet certain requirements. QDRO plans must establish reasonable procedures to determine the status of domestic relations. Plans must establish reasonable procedures and they need to determine the status of domestic relations orders.
Administrators are required to follow the plan’s procedures for making QDRO determinations. They can also give notice to participants and alternate payees of the receipt of a domestic relations order according to the plan that has been created.
A state court does not have jurisdiction to determine whether an issued domestic relations order constitutes a qualified domestic relations order. Jurisdiction to challenge a plan administrator’s decision about the qualified status of an order lies exclusively in Federal court.
If you have any questions about QDROs and how they are implemented in the Florida divorce process, please feel free to give us a call.