QDRO: Qualified Domestic Relations Order
Dividing Retirement Benefits & Assets
Kirkman Attorneys at Law
The divorce lawyers at Kirkman Attorneys at Law provide award-winning representation in all aspects of divorce, including the highly-specialized area of retirement division. Our divorce attorneys are skilled and experienced in dividing retirement plans and benefits, including pension plans, 401(k) plans, individual retirement accounts (IRA), government retirement benefits, and military retirement benefits. Distribution of retirement benefits and assets can be incidental to divorce or to enforce other family obligations.
In most instances, to distribute or divide retirement benefits or assets, a special court order is necessary to provide the plan administrator or trustee with the detailed, specific, and technical instructions needed to accomplish the distribution or division of your spouse’s retirement. For most retirement benefits/assets, the administrator of the retirement plan will not pay or distribute your share without a separate special court order, even if you already have a separation agreement or divorce decree which states you are entitled to a portion of your spouse’s retirement. These special orders allow and authorize the retirement plan administrators and trustees to divert and distribute the retirement assets, often in a manner that does not result in tax penalties to either spouse. These special court orders have different names depending on the type of retirement plan, benefit, or asset to be divided. Typically, a separate special court order is needed for each retirement plan, benefit, or asset.
These special orders are known generally as a domestic relations order (DRO). There are special categories of DROs that go by other names. If the retirement benefit, plan, or asset is governed by the federal law known as ERISA ( Employee Retirement Income Security Act of 1974), such as pensions and defined contribution plans (such as 401(k) plans), the DRO must be “qualified,” making it a Qualified Domestic Relations Order (QDRO – pronounced quad-RO). A QDRO is the most common DRO. For plans governed by ERISA, the administrator of the retirement plan is prohibited by federal law from dividing or distributing retirement benefits to the other spouse without a proper QDRO. Orders which transfer military or other federal government retirement benefits and assets also require special types of DROs known as Court Order Acceptable for Processing” (or “COAP”) or a “Military Pension Division Order” (or “MPDO”). Likewise, if the federal agency administering the retirement benefits does not receive an order which complies with federal law and the accompanying regulations the retirement benefits cannot be distributed.
The preparation of DROs, including QDROs, COAPs, and MPDO, are very technical and often complicated. Not only does the preparation require knowledge of state domestic relations laws, but also state and federal laws governing employment and retirement benefits. If not properly prepared and compliant with both federal and state law governing retirement benefits/ plans but also the terms (governing documents) of the plan, the assets might not get divided or disbursed. The family lawyers at Kirkman Attorneys at Law have successfully prepared thousands of DROs, including a multitude of QDROs, COAPs, and MPDOs. We have helped hundreds of your neighbors, we can help you too.
In a divorce, are all retirement benefits and assets (pensions, 401(k), IRAs, etc.) divided?
In North Carolina, any pension or retirement benefits, vested or non-vested, acquired during a marriage is considered marital property and subject to equitable distribution during divorce proceedings. To learn more about equitable distribution proceedings, visit our equitable distribution learning center.
How Are Pensions Divided In A Divorce?
Under North Carolina law, the marital and separate portions of a pension is typically determined by a fractional formula known as the marital coverture fraction where the total length of time the spouse was simultaneous employed and married (but only up to the date of separation) is divided by the entire length of employment. The marital coverture fraction is then applied to the retirement benefit to determine the portion of the retirement benefit which is marital and therefore subject to division and distribution. Generally, the parties and the court have two options with regards to how to treat pensions. The first and most common is to instruct the administrator of the pension plan to split the retirement payments (once the payments begin under the terms of the plan) by paying a percentage (most commonly 50%) of the marital coverture fraction of the pension to the other spouse. The second is to provide for a lump sum buy-out whereby the expected value of the marital coverture fraction is reduced to a present-day value. The present-day value is most often determined through the use of an appraisal.
How Are Other Retirement Assets (other than pensions) Divided In a Divorce?
For most retirement assets other than a pension, generally, the marital portion of the retirement which will be subject to division is the value of the retirement plan/account on the date of separation less the value of the retirement plan/account on the date of marriage(plus or minus the gains or losses that occurred on the pre-marital amount).