Qualified Domestic Relations Orders (QDROs) enable distributions to be made from retirement plans such as defined benefit or pension plans, defined contribution plans, individual retirement plans (IRAs), annuity plans, etc. to the spouse or former spouses of the plan owner provided that such orders are qualified. The spouse or former spouse is known as the “alternate payee” and has the right to receive a portion or the entire benefit payable to the spouse who is actual owner of the retirement plan. The owner of the retirement plan is known as the “participant”.
Why do they need to be qualified?
The Order needs to be qualified by the plan that administers the retirement plan in order to insure that the benefits the alternate payee receives are taxed appropriately.
What does it mean to be qualified?
The Order becomes qualified when they meet the various requirements set forth by the Internal Revenue Service and federal regulations which set forth the basic guidelines for all QDROs. Essentially what this means is that the QDRO must be designed in such a way so as to insure that the distribution to the non-owner spouse is divided and deposited in an account without any immediate tax consequences to either party. So what the QDRO does is create a separate account or interest for the alternate payee without having any effect on the participant other than assigning a portion of his or her benefit away to the alternate payee. Therefore, the recipient spouse is not taxed on the receipt of the distribution and the participant is not taxed on the withdrawal of the distribution.
What does my attorney need to prepare a QDRO?
You should provide your attorney with the name, address, and social security number of the participant, as well as a copy of the summary plan description for the retirement plan, the plan’s written QDRO procedures, if available, and a most recent annual benefits statement indicating the current value of the plan. If you do not have access to this information at the onset of your divorce matter, you will need to make sure that the owner spouse provides this information to your attorney during the discovery stage of your divorce matter.
If you have questions regarding the equitable distribution of retirement accounts, contact the Law Offices of Renee Lazar by sending an email or calling 978-844-4095 to schedule a free initial consultation.