Other than real estate, often times the largest assets to be distributed in a divorce are the parties retirement assets. Retirement assets include pensions, IRAs, 401ks, 403Bs, deferred income, and other funds allocated for retirement. The question arises – how are the assets physically distributed? What mechanism is used to transfer the funds from one party to the other? The answer is the qualified domestic relations order (QDRO).
A QDRO is a court order directed to the administrator of the retirement asset that needs to be divided. A QDRO is necessary because the administrator of the retirement asset cannot transfer any portion of one party’s retirement asset to anybody else without a court order. The QDRO is that court order. It as an order which is prepared and forwarded to the judge in the divorce case for the judge’s review and signature. The order orders, empowers and authorizes the retirement account administrator to transfer retirement funds from one party to another during or after a divorce. Decades ago attorneys prepared QDROs and submitted them to the courts. However, over the past 20 years an entire industry has grown up dedicated to creating QDROs. These third-party QDRO preparers produce QDROs at a much cheaper cost (usually $400 – $500 per QDRO) than attorney-generated QDROs. For the clients it is a savings. For attorneys it means that they can outsource the QDRO preparation to experts who will be responsible for drafting the court-ready documents. The attorney’s role is to review the documents and make sure that they cover the necessary issues.
During the divorce process the parties exchanged information pertaining to their retirement accounts – the name of the account administrator, the value of the account, the date that the account was opened, information on account loans or withdrawals, and other related information. Once the parties agree on the percentage distribution of the marital portion of each account (or after the judge determines the percentage distribution after a trial) the account information gathered during the divorce is forwarded to the QDRO preparation company. The QDRO preparation company prepares the QDRO and forwards it to the attorneys for their review. If there are no changes the attorneys have the QDRO signed by their clients and then forward the QDRO to the judge who handled their divorce case. The judge reviews the QDRO and if it is acceptable he or she signs it and sends it back to the attorney who submitted it. The attorney then forwards the signed QDRO to the retirement account administrator who divides the retirement asset according to the terms set forth in the QDRO.
It should be noted that the majority of retirement account administrators have what’s called a “Model QDRO”. The model QDRO is a template version of the language that is necessary to be included in the final QDRO. The Model QDRO should be secured in advance and forwarded to the QDRO preparation company.
The timeline to have a QDRO prepared, reviewed, forwarded to the judge signed, and forwarded to the retirement administrator is about 90 days. There is no time limit on preparing the QDRO. However, delay in preparing the QDRO after divorce can lead to a host of serious complications. For example, if the person whose retirement asset is being QDRO’d gets remarried before the QDRO is effectuated there can be a dispute as to who is the beneficiary, and what portion of the retirement asset they are entitled to – (i.e., does the first wife or second wife have precedence?). Similarly, if the person whose retirement asset is being QDRO’d dies without the QDRO being in effect, there can be issues with securing the ex-spouse’s share of the retirement benefits, including any survivor’s benefit. Suffice it to say the QDRO should be completed as soon as possible after the divorce is finalized.
I have been helping clients with QDRO issues and other family law-related issues for over 20 years. I practice primarily in Bergen, Hudson, Essex, Passaic and Union counties in Northern New Jersey. Feel free to contact my office if you have any questions about determination and division of retirement assets, and preparation of QDRO’s. You can reach me at 201-731-3086, or via e-mail using the e-mail contact form. The consultation is free.