What divorcing spouses should know about QDROs and their role in divorce
People divorcing in Minnesota should understand the role of a QDRO and the common mistakes that may arise when these legal orders are drafted.
During a Minnesota divorce, assets and debts that a couple acquired while married are distributed between them in a “just and equitable” manner. The division of marital assets, such as real estate, investment accounts and collectibles, can generally be accomplished through a divorce decree. However, some couples may also need to draft a separate order known as a qualified domestic relations order (aka “QDRO”) to complete the division of some types of retirement related accounts.
A QDRO is used to divide certain retirement assets, such as pension plans and 401(k)s, between the employee and non-employee spouse by reassigning the plan participant’s assets to the other spouse. If structured properly, a QDRO lets spouses redistribute these assets without making early withdrawals and incurring penalty taxes. In addition to facilitating marital property division, a QDRO may redistribute assets to satisfy spousal maintenance obligations or make child support payments.
Drafting a QDRO is not only necessary for spouses who wish to minimize tax losses. In many cases, a pension plan or retirement account administrator will not honor the redistribution of assets specified in a divorce decree unless there is a supporting QDRO.
QDROs are complex and technical documents. As a result, there are many pitfalls that spouses should beware of when drafting one. These include the following missteps:
· Not properly completing the legal order. This document must contain specific information about each spouse, the retirement plan and the terms of the redistribution. Otherwise, the order may not be valid.
· Failing to follow the rules of the retirement plan when preparing the proposed QDRO.
· Failing to submit the QDRO for approval. A QDRO may be denied on various grounds, which makes it imperative for a pension plan administrator to review and approve the document.
It is important to know for which retirement accounts a QDRO is necessary. It is also important to follow the rules of the retirement plan when preparing a QDRO. Finally, it is advisable to obtain preapproval from the plan administrator prior to submitting the proposed QDRO to the court for judicial approval.
Drafting the QDRO
Dividing assets with a QDRO can introduce many complications in a divorce. Consequently, divorcing spouses should consider seeking the assistance of an attorney who has experience in this complex area of law. An attorney may be able to help a spouse avoid oversights while seeking an advantageous division of assets.