Qualified Domestic Relations Order: What Is It?

If you’ve ever sat down with a tax specialist or a financial advisor, he/she might have mentioned something about a QDRO or Qualified Domestic Relations Order. And, if you’re like the millions of other folks just hearing this phrase, you might be wondering what it means and how it affects you. It’s reasonable to question what you’re not sure about especially when it comes to financial matters. So, what exactly is a QDRO?

 

What Is A Qualified Domestic Relations Order

 

A Qualified Domestic Relations Order is a court order or decree that establishes the marital property rights for a spouse, ex-spouse, child or a dependent with all respect to certain kinds of qualified retirement plans such as the defined contribution and defined benefits plans.

 

- Defined contribution plans indicate what contribution level the employer has.

- Defined benefits plans promote a certain amount of monthly benefits that are paid at retirement.

 

ERISA Guidelines Of What Falls and Does Not Fall Under The Qualified Domestic Relations Order

 

Basically, the Qualified Domestic Relations Order is part of a retirement plan, which ensures the retiree has money during the golden years to financially support themselves. This is because of a 1974 measure dubbed ERISA or Employee Retirement Income Security Act. This act sets the minimum standards for pension plans within the private sector and gives in-depth guidelines on the federal income tax effects on transactions linked to employee benefit plans. ERISA also has the anti-assignment and alienation guidelines that also ensure this happens.

 

ERISA will not cover retirement plans set up by churches and government entities or plays that comply with workers’ compensation, disability and unemployment laws. It also will not cover plans that are designed outside the United States for the purpose of a nonresident alien.

 

Now, Qualified Domestic Relations Order will not be applied to any non-qualified retirement plans like annuity plans and specific deferred compensation plans. Your individual retirement account does not fall under ERISA even if you have a tax deduction. Thus, you will not need the QDRO.

 

Under Qualified Domestic Relations Order exceptions, an order can be attached to some, if not all, of the participant’s retirement benefits so that the wife, ex-wife, children or other dependent are given monies to satisfy a family support and/or marital property obligation. However, it must be a qualified domestic relations order before it is even considered.

 

Child Support Matters and  Qualified Domestic Relations Order

 

Should a Qualified Domestic Relations Order be in place for child support, nothing the parent does can withdraw it, as they are permanent. This is especially helpful if the participant is no longer employed due to retirement and is getting benefits or he/she is unemployed but has the benefits from their previous employer. It can also be drafted to deal with child support arrears. A QDRO, which is time-consuming to put together, must have the minor children’s birthdate and the date the payments will end.

 

Who Handles The Retirement Plan and What Are Their Duties

 

According to Federal law, the retirement plan administrator (individual or entity) is the one responsible to figure out whether or not a domestic relations order is a qualified domestic relations order. Plan administrators must carry out their duties quickly in the interests of the participants and beneficiaries.

 

The plan must lay out sensible procedures to determine the status of a Qualified Domestic Relations Order and do the distributions as set out by the plan. Administrators must give participants and alternate payees notice of the qualified domestic relations order receipt and are able to show a copy of the procedures to determine the status on such orders.

 

A Qualified Domestic Relations Order is a necessary document that ensures financial safety in the future. However, if you’re wondering how it affects retirement plans including any tax implications it may have, it would be in your best interest to talk with a financial or tax advisor.

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