Pensions and most retirement accounts are divided with a Qualified Domestic Relations Order (QDRO)
In Georgia, if the parties cannot agree between themselves on how to split marital assets, then a superior court judge must equitably distribute the marital assets (as well as the marital liabilities) to each party in a divorce.
Often, retirement plans are one of the largest assets spouses have that must be taken into consideration during a contested divorce case. If a retirement plan was created or enhanced during the marriage it must be included in the marital estate and is then subject to division. Although Georgia state law dictates how IRAs are transferred and distributed, that is not true for retirement account funds. 401(k), 403(b) and other similar types of plans require special consideration for equitable distribution, as the court must follow exacting federal guidelines in dividing these plans.
To fairly divide assets in a divorce, Qualified Domestic Relations Orders, commonly referred to as QDRO's, are used. When dividing pension, 401(k) and retirement plans in a divorce, a properly drafted QDRO is necessary. In fact, it is the only legally acceptable method for the division of many pension and retirement assets.
A QDRO Must Be Drafted Correctly to be Enforceable
As Roswell and Cumming QDRO lawyers, we understand that it is difficult to draft the document correctly. A QDRO is often a lengthy document because it needs to clearly articulate what assets are involved and how they are to be apportioned. Additional, very specific steps are usually required in the underlying divorce action to make sure that the orders are enforceable against the plan. If the proper steps are not precisely followed, many plans are not required by law to abide by the terms of the orders and will simply not honor the QDRO. If that happens, distribution of the assets to both parties will not occur as they had intended. That is why it is so important that an experienced QDRO lawyer be retained to draft the documents.
A QDRO Creates Rights to Receive Benefits
Specifically, a well-drafted QDRO creates the right of an “alternate payee” (i.e., a spouse), to receive plan benefits. Thus, for federal income tax purposes, the recipient spouse is treated as an actual plan participant, with certain rights and obligations. The ex-spouse may be permitted to withdraw a lump sum or receive payments, depending upon the terms of the specific plan.
The QDRO lawyer must ensure that the QDRO is prepared in such a way that all the relevant issues are addressed. A proper QDRO must contain certain information delineated in the federal Employee Retirement Income Security Act (ERISA), as amended by the Retirement Equity Act of 1984 (REA). For instance, the names and addresses of the plan participant and the recipient of the court award (the ex-spouse) must be included in the QDRO; the specific amount by percentage of your account to be given to your alternate payee; the actual number of payments or the period (usually in years) to which the order applies; the precise calculations by which the amount or percentage is to be determined; and the plan to which the order applies (there can be multiple plans).
In Georgia, the QDRO is entered by the court and then approved by the administrator of each plan affected. Under law, each plan has a designated administrator and the attorney must forward the QDRO to the administrator for final approval. Many larger plans have full-time employees whose sole job is to review QDRO submissions.
A Spouse Can Have Multiple Retirement Plans
Sometimes a spouse has more than one retirement plan; or a spouse has more than one pension plan. With this in mind, a well-drafted QDRO can be utilized to assign rights to retirement benefits under more than one retirement plan. And that can be one or more plans created by the same or different employers. However, each plan and the assignment of benefit rights must be clearly specified for it to be enforceable.
Individual Retirement Accounts (IRAs) Do Not Require a QDRO
Many people have IRAs (Individual Retirement Accounts), especially in the Atlanta area. An IRA, however, is not split using a QDRO. That's because they are not governed by the federal ERISA law. Sometimes, if both are spouses are employed and have their own retirement accounts, they will just agree to keep what they already have and avoid the need for a QDRO. We have seen spouses “trade” certain property when they are splitting marital assets. Under this scenario, one spouse may keep the house while the other will keep the retirement account of roughly equal value.
Get a QDRO Now – Do Not Wait Until Your Former Spouse Retires (or Dies)
People lose very valuable QDRO rights all the time. Sometimes just a short delay in creating a QDRO can cause forfeiture of all the benefits awarded in the divorce. The following is a list of events that can occur before a QDRO is finalized that can cause you to lose financial benefits:
- quitting or getting fired
- withdrawal of funds from the Plan prior to retirement
obtaining a loan secured by the Plan account
Some Retirement Plans That Could Be Subject to a QDRO
We are often asked what types of retirement assets are divided with a QDRO. Here are some plans that can be subject to QDRO rules:
- 401(k) plans
- profit sharing plans
- 403(b) plans
- Keogh plans
- deferred compensation plans
- money purchase pension plans
- federal civil service pensions
- non-qualified plans
- traditional defined benefit pension plans that pay a monthly check at retirement
- cash balance plans
- military retirement
- 457 plans
- federal thrift savings plan
- state civil service pensions
- tax-deferred annuities
Watch Out for These Common QDRO Errors
Each party (husband and wife) needs to have an attorney to fully review the QDRO. Using one lawyer to draft the QDRO and basically represent both parties is oftentimes a mistake. A QDRO is not a neutral document; remember assets are being divided. It is a document that advances one side over the other. It is a “zero-sum game” where one party benefits when the other side receives less. If money is an issue for a divorcing couple, then you should volunteer to get the QDRO drafted.
Warning: Do NOT Use an Employer-Provided Sample QDRO
Do not use an employer-provided sample QDRO. Many employer QDROs fail to include language that is necessary to make the document fully effective. Some are merely recitations of language that fits some, but not all, QDROs. The QDRO may even lack some standard language and important clauses. Corporate QDROs are usually just to benefit the company by providing a bare-bones document that the company can approve without the need to spend the company's money on an in-depth and thorough approval process.
A sample QDRO might be useful as a basic guide, but not really much more than that in most cases. On the positive side, it probably gives a good indication of some language the plan administrator would like to see in the QDRO. For example, some plans can be very picky and insist that certain words are used, like the word "supplement" instead of "subsidy.” Using the wrong word can cause your QDRO to be rejected. An employer-provided sample is best used to glean this sort of information.
QDRO Tax Implications
QDRO funds are paid by the plan administrator to the ex-spouse. The payment to the spouse would be taxable income to the ex (the person receiving the payment). Sometimes we have seen tax deferred accounts or payments given to an ex treated in different ways. A QDRO payment is not like alimony. Alimony is tax deductible to the individual paying it, and is considered income (and thus taxable) to the ex receiving it.
The QDRO Process
After we draft the QDRO it is submitted to the Plan Administrator for pre-approval. After pre-approval, we motion the court for judicial entry of the QDRO. Once entered by the Judge, I obtain a certified copy of the QDRO and provide that copy to the Plan Administrator.
With a 401(k) type plan, the Plan Administrator will formally implement the QDRO and divide the Participant's (person that participated in the plan) portion per the QDRO, rolling over the Alternate Payee's (other party) share of that portion into a separate, new account in his/her name.
When a pension type plan (a plan that will pay a monthly benefit from time of retirement until death) is involved, the Plan Administrator will implement the QDRO and wait until the Alternate Party is eligible to receive his/her monthly benefit based on the Alternate Payee's expected life span. Some Plans, however, do not have this particular option, and the Alternate Payee must wait until the Participant reaches his/her earliest time to receive the Alternate Payee's portion (usually reduced), or until the Participant actually retires, to receive the Alternate Payee's full benefit.
What if the QDRO is delayed?
Generally, there is no statute of limitations on a QDRO. So a delay in preparing the QDRO (even if that delay is years-long) will not result in its dismissal. We have seen people put off drafting and submitting a QDRO for many years. But delaying can have very harmful consequences because records can be lost, companies and other institutions can go out of business or declare bankruptcy and laws can change.
Do I need a QDRO to transfer money from my IRA to my ex-wife?
Interestingly, Individual Retirement Accounts (IRAs) are one of the few retirement accounts that do not legally require a QDRO to be divided. Unlike a 401(k), an IRA is individually created and funded through a financial institution.
Welfare benefit plans: do QDROs apply?
As described in ERISA §3(1), welfare benefit plans, which include an employer's medical, dental, and disability plans, are exempt from the provisions relating to QDROs which are contained in Part 2 of Title 1 of ERISA. Section 210 (1) of ERISA specifically excludes welfare benefit plans from Part 2.
What if the alternate payee dies. Under a defined benefit pension plan can an alternate payee's share of the benefits be given to his/her beneficiary or estate?
Usually, no. If the alternate payee dies before he/she elects to commence benefits from the QDRO, no benefits are payable to her beneficiary or estate. Even if the QDRO includes specific language that provides for payments to be made to the beneficiary or estate of the alternate payee, it will be rejected by the Plan Administrator.
However, if the alternate payee's death occurs after his/her benefit commencement date and if he/she elected a form of benefit payment providing for continued payments to a designated beneficiary in the event of his/her death, then such payments will be made to such beneficiary following his/her death.
When Should a QDRO be Drafted? As Soon As Possible!
In contested matters, the order can be drafted prior to any definite property-division. When experienced and knowledgeable divorce attorney are involved, the parties can agree on most aspects of the order, except the percentage or dollar amount the alternate payee will finally receive. This does not have to cause undo delay.
A good QDRO lawyer can draft the parts of the order that reflect the parties' agreement, then submit it to the plan administrator with the dollar amount or percentage left blank with a notation providing that it will be completed at a later date.
The plan administrator cannot deem the draft a final QDRO without the dollar amount or percentage, but this will provide the drafter a good chance to learn of any other problems with the proposed QDRO.
I have a divorce decree. Can it be considered a QDRO?
Almost always, the answer is no. It would be quite rare for a divorce decree to contain all of the information that's needed for the employer's QDRO requirements.
How much will my ex-spouse be entitled to?
That depends on many factors. Basically, you and your spouse or ex-spouse and the Georgia court will determine the appropriate division of retirement benefits in your specific case.
Who Is Responsible for Submitting a QDRO?
Either party can submit it. As a practical matter, a party's attorney may submit the QDRO. That way there is lkess chance for error if it is submitted by a QDRO attorney. We usually submit them for our clients.
Is my spouse entitled to information about my accrued benefits from a pension plan?
Yes, your spouse is usually entitled to information about your accrued benefits, which the pension plan must furnish upon written request. In some cases, however, an ex-spouse will need a subpoena or your written authorization for the pension plan to release information.
Can I get a lump sum?
Possibly, but it really depends on the type of plan involved. Here are some plans that may allow a lump sum payment:
- 457 Plans (also known as Defined Contribution Plans),
- An IRA
- Thrift Savings Plans
Here are some plans that usually do not allow lump sum payments:
- Pension Plans (also known as Defined Benefit Plans)
- Military Plans
- Federal Civil Service Plans
Every Divorce Lawyer Should Know How to Draft a QDRO!
For two compelling reasons, every divorce lawyer should know how to draft a QDRO. The first reason is the sheer number of ERISA-qualified retirement plans. In fact, in the United States there are over 800,000 such plans containing over $4 trillion in assets for more than ninety million workers. The second reason is that half of all marriages end in divorce.
Warning: Don't draft a QDRO yourself!
A common (and usually very costly) error we see is when people (including some attorneys who are not QDRO-experienced) make the mistake of using a model QDRO from another jurisdiction. If you do that bad things can happen, including:
- You give up way too much: awarding the alternate payee far more benefits than he/she would legally be entitled to
- Bad formatting: many individuals who draft their own QDROs are not able to format the QDRO correctly to be accepted by the court that handled their divorce
Mistakes Can Happen! Be prepared....
Mistakes happen in the process of paying benefits to participants and alternate payees.
We've seen where a plan has mistakenly sent a payment intended for the alternate payee to the participant instead. Since the plan's only concern is to avoid overpayment, the plan's model QDRO will not address how a mistaken payment should be remedied.
We suggest that specific language be included in the QDRO that requires the participant who receives a payment intended for the alternate payee to return the money to the plan administrator along with a written request that the funds be forwarded to the alternate payee.
We recommend that the participant should not forward the payment to the alternate payee directly because the party receiving the payment is responsible for paying the income taxes on the payment and we don't want to run afoul of the IRS. If the plan administrator does not correct the misdirected payment, then the participant will actually owe taxes on the payment intended for the alternate payee.
QDRO Plan Administrators Have Certain Obligations
They must, by law, develop a specific QDRO procedures document. If the retirement plan falls under ERISA, Department of Labor (DOL) regulations provide that they must have QDRO procedures in place. The QDRO procedures must be:
- Explained in writing
- Be reasonable and in conformance with all applicable laws, rules and regulations
- Define and explain all documents available for review
- Delineate time limits involved in the determination process
- Describe with particularity the administrative precautions taken to protect and preserve the plan assets upon receipt of a properly drafted domestic relations order
We are Georgia QDRO Lawyers
If you are considering a divorce in Georgia and have any questions or concerns regarding issues particular to the treatment of retirement plans or pensions, contact us immediately at (678) 712-8561. As attorneys who have drafted numerous QDRO's, we can help ensure that these important financial documents are done correctly and we can answer any questions you may have and provide knowledgeable and assertive representation in a Georgia divorce and family case.
Experienced, Knowledgeable & Caring
Our experience will help you understand all of your rights when a retirement plan is involved. Attorney Valerie W. Sherman has the valuable experience of having served as a Magistrate Judge and as an Assistant County Attorney.
And as a Senior Assistant County Attorney and as an Assistant Attorney General, William H. Sherman gained valuable insights into how these matters are handled and how to structure the best possible deals for clients.
With offices in Roswell and Cumming, we serve clients throughout the Atlanta Metro Area, North Fulton County and North Georgia.
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