When Should I Get a Qualified Domestic Relations Order?

When Should I Get a Qualified Domestic Relations Order?
The emotional and financial trauma that comes with a divorce is difficult enough for a couple. During the divorce, it is relatively simple to divide tangible assets like homes or vehicles. However, the equitable division of a retirement plan or a pension plan is more difficult. While many individuals assume their divorce settlement agreement will fully protect their rights to the portion of their former spouse’s retirement fund that was contributed to during their marriage, this is not always the case. One way to ensure that your retirement funds are equitably distributed is through a Qualified Domestic Relations Order (QDRO).

What is a Qualified Domestic Relations Order?

A Qualified Domestic Relations Order is a court order that divides the benefits of a retirement plan between two former spouses and is then accepted by the administrator of the retirement plan. A QDRO generally contains specific directions for how a retirement fund or pension plan will be distributed. Administrators of pensions and retirement funds have specific requirements for the division of retirement funds. When the former spouse becomes eligible for retirement, a QDRO will direct the administrator of the retirement account to distribute the funds according to this legal order.

Typically, a court will issue a QDRO granting a non-employed spouse the right to a certain portion of an employed spouse’s retirement fund. In addition to a portion of the retirement fund’s benefits, a QDRO can also entitle the non-paying spouse to any potential survivor benefits included in the policy.

When Should I Seek a QDRO?

In short, the best time to seek a QDRO is before the divorce is finalized. These are a few consequences of waiting to seek a QDRO:

●       The employee-spouse may retire. Once he or she begins collecting benefits from the retirement fund, it may be difficult to retroactively claw back the benefits that the non-employee spouse would otherwise be entitled to receive. At the bare minimum, this could potentially turn into a costly, lengthy legal battle that could easily be avoided.

●       The employee-spouse may die. If the retirement plan has any pre-retirement death benefits, the non-employee spouse will not be able to receive the benefits.

●       The employee-spouse may withdraw from the account or take a loan against it. Without a QDRO, the employee-spouse still has complete control over, and unfettered rights, to his or her retirement account. Unfortunately, this means that he or she can also significantly reduce the value of the fund by actually withdrawing his contributions or taking a loan against the account, encumbering the rights of the non-employee spouse.

●       Waiting to seek a Qualified Domestic Relations Order may result in lost evidence of financial records. Financial institutions typically only keep records for a limited period of time, usually seven years. The longer a non-employee spouse waits to seek a Qualified Domestic Relations Order, the more likely it is that relevant evidence becomes more difficult to locate, which would ultimately harm the non-employee spouse’s ability to seek maximum contribution from the retirement or pension fund.