For those expecting to retire soon, understanding the basics of a Qualified Domestics Relations Order (QDRO) is essential. Retirees expecting a divorce or with dependents will be particularly impacted by a QDRO, as these court orders affect the payout of retirement plans.
A QDRO identifies an alternate payee to receive a portion of one’s retirement plan. So, who do these plans identify as payees and how much might they receive?
The basics of a QDRO
QDROs are complex documents that demand considerable legal requirements. It is important to understand the following elements:
- Alternate payee: A QDRO sets aside a certain amount of one’s retirement plan for another. This money may provide child support or alimony to an ex, a current spouse, children, or other dependents.
- Court-ordered: QDROs can be judgments, orders or decrees that approve property-settlement agreements involving retirement plans. QDROs frequently see use in divorce proceedings.
- Time and percentage: QDROs must contain all the relevant contact information for the involved parties as well as designate certain payment limitations. QDROs must outline payment percentages and how long payments last.
- No early-withdrawal penalty: If ordered to draw out of a retirement plan early, a QDRO will not punish any of the involved parties with a monetary penalty.
- Drafted by plan administrator: A federal plan administrator will draw up the complicated QDRO paperwork for each party to fill out. Securing the services of an attorney experienced with QDROs may serve to represent one’s interests better.
- QDROs can cover other payouts: QDROs not only impact retirement plans but other payments due to dependents. QDROs can even affect life insurance payouts or other assets.
Secure experienced representation
Those expecting to retire soon should also note that any retirement plan covered by the Employee Retirement Income Security Act requires a QDRO. Securing the services of a lawyer experienced with QDROs may help divorcing retirees understand more about their retirement fund allocations. An attorney can also work to secure preferred dispensation percentages and help ensure these funds go where needed.