For many Colorado couples, retirement plans are among their most important assets. In a divorce, the court may order that one spouse’s retirement plan be split and a portion of the funds awarded to an alternate payee, who can be the other spouse or a child of the participant. For most plans, this must be done with a Qualified Domestic Relations Order.
Although divorce is generally a matter of state law, the majority of retirement plans in the U.S. are governed by federal law. These federal laws require that before a plan be split, a QDRO must be entered by the state court.A QDRO must meet certain requirements to comply with both the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. Compliance with these federal laws is necessary to maintain the tax benefits of the retirement plan when it is split.
A QDRO does not have to be a separate order from the divorce decree; it can be included as a provision in the decree as long as it meets the federal QDRO requirements. To be valid, a QDRO must clearly identify the plan at issue, provide the names and addresses of the plan participant and the alternate payee, and indicate the dollar amount or percentage of the split and the schedule of payments.
Once the QDRO is signed by the state court, it must be reviewed and approved by the plan administrator. Upon approval by the plan administrator, a separate account is opened in the name of the alternate payee and the funds are transferred to the new account.
The information in this post is general information only and not specific legal advice. It is best to enlist the help of an experienced family law attorney when retirement plans are at issue in a divorce or other domestic relations matter.
Source: U.S. Dept. of Labor, “Frequently Asked Questions: Qualified Domestic Relations Orders,” accessed Dec. 2, 2014