What Is a QDRO (“Qua-dro”)?

One of the legal terms that judges and divorce lawyers tend to throw around is “QRDO.” To learn more, please read on.

What Does QDRO stand for?

It’s an acronym for Qualified Domestic Relations Order.

How do you Pronounce QDRO?

In Connecticut, we tend to pronounce the acronym like it’s a word — “quadro” — rather than listing the letters — “Q-D-R-O.”

What Does a QDRO Do?

All sorts of federal rules and regulations govern how to divide employer-sponsored retirement plans in a divorce.  According to the IRS, a QDRO is “a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant.” Essentially, a QDRO is how you split the contents of a retirement fund between two divorcing spouses.

Who Needs a QDRO?

If you are splitting a 401(k), pension, or other qualified plan, you must obtain a QDRO to access the funds without a tax penalty.  QDROs only apply to plans covered by ERISA.  Simply withdrawing from such a plan following divorce would trigger a tax event, including possibly a fine.  A QDRO avoids this problem.

What’s ERISA?

The Employee Retirement Income Security Act covers private-sector pension and retirement plans.

What Is a “Qualified” Plan?

A qualified plan is simply a plan Section 401(a) of the Tax Code describes.  Generally, the IRS doesn’t tax your contributions until you withdraw money from the plan.  The most common types of qualified plans are defined contribution plans, like 401(k)s, and defined benefit plans, like pensions.  Most retirement plans that you obtain through your employer are qualified plans.

Do I need a QDRO to Transfer or Receive IRA funds?

No.  We divide IRAs using a “transfer incident to divorce.” As with a QDRO and qualified accounts, the government doesn’t access any tax will as long as you execute the transfer incident to divorce correctly.

Will My Divorce Attorney Prepare the QDRO?

No.  The rules that govern QDROs and retirement plans are complex and constantly changing.  In addition, you must draft them to meet each particular plan’s specific criteria.

Experienced family law attorneys rarely prepare QDROs and outsource that work to QDRO attorneys.

What Happens After the QDRO is Prepared?

After the QDRO is prepared, we must file it with the divorce court.  Then, the judge must approve it.  Next, the QDRO attorney sends it to the “plan administrator” for review and, hopefully, approval.  Barring any issues, the plan administrator will distribute the funds.

How Long Does a QDRO Take?

Unfortunately, sometimes it can take many months between drafting the QDRO and transferring funds.  There are a lot of moving parts and approvals required from many different parties.

As there is no specific time limit that the directions in the QDRO must be carried out.  Everything depends on how quickly the lawyers, court, and particularly the administrator who actually holds the funds complete their respective parts of the process.  Sometimes the QDRO attorney can give you some sense of a rough timeframe of a particular fund administrator if they have previously completed a QDRO for the same plan.

The Comprehensive Connecticut Property Division Guide

Property division is one of the most critical issues in divorces.  It’s also one of the most confusing.  There are no set formulas or rules on how Connecticut courts must divide property.  The good news is that it creates tremendous flexibility for experienced divorce attorneys to craft an individualized approach.  To prepare to make solid and informed decisions, you need to understand how property division works.  Our Comprehensive Connecticut Property Division Guide tells you everything you need to know about property division in Connecticut.

What Are My Next Steps?

Now that you have learned about QDROs, you may want to know more about the factors that Connecticut courts consider when dividing retirement accounts.

Considering the complexity involved in dividing marital assets, having experienced legal counsel on your side is vital.  There is a lot of opportunity for creative negotiations, strategy, and solutions.

Our first step at Freed Marcroft, the Goals & Planning Conference, is designed to get to the heart of your problem and unveil your true goals.  Then, we take those goals along with the facts of your case and analyze them to present you with recommendations and options for moving forward.