Qualified Domestic Relations Order (QDRO)
A Qualified Domestic Relations Order (QDRO) is a fairly complex document. Generally speaking, it defines the benefits owed to the ex-spouse and how the amount of benefits payable out of a pension or other retirement account will be calculated. A QDRO gives an ex-spouse (or someone else) the right to receive a portion of retirement benefits.
Drafting a QDRO that fully represents a client's interests is one of the more difficult legal tasks in divorce and family law cases. It takes experience and know-how to do it right. The attorneys at James E. Crawford, Jr. & Associates have been in practice since 1992 and have handled many divorces involving QDROs dividing retirement and pension benefits. For a free evaluation of your situation, call 443-709-9999 or contact us online.
What Does a Qualified Domestic Relations Order Do?
A QDRO will determine who gets what when it comes to retirement benefits. The order is supposed to be "fair," which means that the non-employee ex-spouse should get a fair share of retirement benefits - not all of it. In order for a judge to sign off on a QDRO, the document must:
- Include a sum total of payable benefits or a formula that calculates the amount of benefits to be paid at the time of retirement.
- In addition, the QDRO must also comply with Maryland's equitable distribution law (be "fair" under certain criteria) and specify payment that's consistent with the terms of the retirement plan itself.
Important: QDROs can be written in a variety of ways. Two QDROs side by side might look the same, but one might do what you want (pay you the amount of benefits you deserve) and the other might not.
Two Types of QDROs Used in the State of Maryland
After the enactment of ERISA, Congress and various courts questioned the validity and efficacy of state law domestic relations orders that awarded a non-participant spouse an interest in a participant spouse's pension benefits under an ERISA covered plan. In response, Congress passed the Retirement Equity Act of 1984 (P.L. 98-397, 98 Stat. 1433) (“REA”), which exempted from the spendthrift and preemption provisions “qualified domestic relations orders” or “QDROs.” 29 U.S.C. § 1056(d)(3)(A). With respect to qualified domestic relations orders, the REA provides, in pertinent part:
(B) for purposes of this paragraph-
(i) the term “qualified domestic relations order” means a domestic relations order-
(I) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and
(II) with respect to which the requirements of subparagraphs (C) and (D) are met, and
(ii) the term ‘domestic relations order’ means any judgment, decree, or order (including approval of a property settlement agreement) which-
(I) relates to the provision of child support, alimony payments, or marital **389 property rights to a spouse, former spouse, child, or other dependent of a participant, and
(II) is made pursuant to a State domestic relations law (including a community property law).
(C) A domestic relations order meets the requirements of this subparagraph only if such order clearly specifies-
(i) the name and last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
(ii) the amount and percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
(iii) the number of payments or period to which such order applies, and
(iv) each plan to which such order applies.
(D) A domestic relations order meets the requirements of this subparagraph only if such order-
(i) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,
(ii) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.
(i) A domestic relations order shall not be treated as failing to meet the requirements of clause (i) of subparagraph (D) solely because such order requires that payment of benefits be made to an alternate payee-
(I) in the case of any payment before a participant has separated from service, on or after the date on which the participant attains (or would have attained) the earliest retirement age,
(II) as if the participant had retired on the date on which such payment is to begin under such order (but taking into account only the present value of benefits actually *109 accrued and not taking into account the present value of any employer subsidy for early retirement), and
(III) in any form in which such benefits may be paid under the plan to the participant (other than in the form of a joint and survivor annuity with respect to the alternate payee and his or her subsequent spouse).
29 U.S.C. § 1056(d)(3)(B)-(E).
Under the REA, an alternate payee is “any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under the plan with respect to such participant.” Id. § 1056(d)(3)(K). An alternate payee, under a qualified domestic relations order, is treated as a plan beneficiary. Id. § 1056(d)(3)(J).
It is important to note that 29 U.S.C. § 1056(d)(3)(D) prohibits the qualification of domestic relations orders that grant “any type or form of benefit, or any option, not otherwise provided under the plan,” or orders that result in a plan having to pay increased benefits.
Thus, QDROs can be drafted to provide for differing payment types depending upon the type of plan involved. Different types of payments are available.
Shared Payment QDRO
One type of payment available is a “shared payment,” whereby the QDRO “seeks to divide only actual payments made with respect to the participant under the plan.” Pamela D. Perdue, Pension, Pension and Welfare Benefit Administration QDRO Guidelines (QDROS; Division of Pensions Through Qualified Domestic Relations Orders), ALI-ABA Course of Study Materials, 62 ALI-ABA 743, 747 (1998) [hereinafter Pension and Welfare].
Under a shared payment approach, only the participant's stream of income is divided and the “alternate payee is not actually given a portion of the actual retirement benefit.” Id. Therefore, the alternate payee's right to receive payment is dependent upon the participant's receipt of payments under the plan and he or she will not receive a distribution unless, and until, the participant is in pay status. Id. Accordingly, QDROs providing for shared payments are typically entered in cases where the participant is already receiving payments under his or her plan.
Separate Interest QDRO
In contrast to the shared payment QDROs are QDROs providing for “separate interest” payments. Id. at 748. Under a separate interest QDRO, the participant's actual retirement benefit is divided, and the alternate payee is permitted to “receive a portion of the retirement benefit to be paid at a time and in a form different from that chosen by the participant.” Id. A separate interest QDRO is often preferred where the order “seeks to divide a pension as part of the marital property as opposed to providing for support payments.” Id.
Upon the receipt of a domestic relations order purporting to grant a participant's interest to an alternate payee, 29 U.S.C. § 1056(d)(3)(G)(i) provides:
(I) the plan administrator shall promptly notify the participant and each alternate payee of the receipt of such order and the plan's procedures for determining the qualified status of domestic relations orders, and
(II) within a reasonable period after receipt of such order, the plan administrator shall determine whether such order is a qualified domestic relations order and notify the participant and each alternate payee of such determination.
The REA at 29 U.S.C. § 1056(d)(3)(H) further provides:
(i) During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this subparagraph referred to as the ‘segregated accounts') which would have been payable to the alternate payee during the period if the order had been determined to be a qualified domestic relations order.
(ii) If within the 18-month period described in clause (v) the order (or modification thereof) is determined to be a qualified domestic relations order, the plan administrator *111 shall pay the segregated amounts (including any interest thereon) to the person or persons entitled thereto.
(iii) If within the 18-month period described in clause (v)-
(I) it is determined that the order is not a qualified domestic relations order, or
(II) the issue as to whether such order is a qualified domestic relations order is not resolved, then the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order.
(iv) Any determination that an order is a qualified domestic relations order which is made after the close of the 18-month period described in clause (v) shall be applied prospectively only.
(v) For purposes of this subparagraph, the 18-month period described in this clause is the 18-month period beginning with the date on which the first payment would be required to be made under the domestic relations order.
(I) If a plan fiduciary acts in accordance with part 3 of this subtitle in-
(i) treating a domestic relations order as being (or not being) a qualified domestic relations order, or
(ii) taking action under subparagraph (H), then the plan's obligation to the participant and each alternate payee shall be discharged to the extent of any payment made pursuant to such Act.
Finding a Lawyer for a QDRO in Baltimore, Maryland
When it comes to money and retirement in divorce cases, it's important to get it right. To consult with an attorney about Qualified Domestic Relations Orders. Call the experienced family law and divorce attorneys at James E. Crawford, Jr. & Associates. Cal 443-709-9999 or contact us online today.