WHAT IS A QDRO?

Many parties in a divorce or legal separation have retirement account(s) that will need to either be distributed to one person or divided between the couple. In mediation, the couple will make the decision about how they want the plan to be divided (or not) and the agreement will become part of their Marital Settlement Agreement (MSA).
If the account will be divided, then a separate court order might be needed so that the exact amounts can be accurately calculated and the instructions can be forwarded to the company where the account is held. For some accounts, such as an Individual Retirement Account (IRA), no separate order is needed, and the parties can deal directly with company after the MSA is finished. Other accounts will require a Qualified Domestic Relations Order (QDRO) which is used by the company to split and/or make changes to the ownership of the retirement plan to give the spouses their share.
There are two main types of pension plans that need a QDRO. One is a Defined Benefit Plan -- 412(i) or cash balance plans for example. A defined benefit plan provides for specific monthly payout at retirement; usually a flat dollar amount or a percentage based on salary, years of employment, etc. A Defined Contribution Plan -- such as 401(k), 403(b), 457 plans, stock plans and profit-sharing plans-- involve contributions from the employee and/or the employer, which are invested and paid upon retirement in an amount according to the investments.
The QDRO is needed so that specific requirements in the IRS Code can be met. IRS rules change on a regular basis, and no two plans have the exact same set of requirements. Both can be very complex. For these reasons, NCRC does not prepare QDROs but can refer parties to specialists to help ensure the QDRO is done properly. Once the MSA is filed at court, then the QDRO can be prepared and filed. The final step is to submit the QDRO to the plan administrator so the actual division or transfer can take place.