What is a QDRO?
What is a QDRO?
QDRO stands for Qualified Domestic Relations Order. A Qualified Domestic Relations Order is a court order that allows a tax-free transfer of assets incident to a divorce. Part of the divorce process is reaching an equitable agreement between spouses. Once the agreement is reached, it may be necessary to transfer finances between parties in order for the parties’ assets to be divided. It is generally a taxable event to transfer non-vested pensions or other retirement accounts without a non-taxable qualifying event. The use of the QDRO makes the transfer a non-taxable event.
When do I get a QDRO?
A Qualified Domestic Relations Order can be completed immediately after a the court’s acceptance of a divorce agreement.
How do I complete a Qualified Domestic Relations Order ?
There are no two QDROs alike. Since almost all companies use Qualified Domestic Relations Order processing centers, it is necessary to contact the company’s HR department to learn their preferred method of finalizing a QDRO. When drafting the Qualified Domestic Relations Order it is best to follow each and every step suggested by the HR department and the Qualified Domestic Relations Order processing company. Allow it is important to follow the plan administrators steps the final QDRO should be carfully drafted to comply with ERISA and include clauses that require the plan administrator to administer the benefit per the party’s intentions.
8 Steps to a completed QDRO
- Receive a Judgment Absolute;
- Contact the HR department where retirement plan(s) derived;
- Follow the plan administrators’ directions;
- Draft the Qualified Domestic Relations Order ;
- Have the plan administrator review / sign off on QDRO;
- Have each party review Qualified Domestic Relations Order and sign Joint Motion for Approval;
- Send to Court for approval; and
- Send Court’s signed QDRO to plan administrator.