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How QDROs factor into the division of retirement assets

It perhaps goes without saying that the longer a couple has been married, the more complicated their divorce is likely to be. That's because they may have children, they may have arranged for one spouse to exit the workforce to help raise their children, and, of course, they may have accumulated more assets.

Indeed, chances are good that these spouses have built a not insubstantial retirement nest egg consisting of funds held in everything from 401(k)s and profit sharing plans to IRAs and pension plans. It's important to understand, however, that any division of these retirement assets, whether achieved via a prolonged courtroom battle or an amicable settlement, must be accompanied by what is known as a qualified domestic relation order -- or QDRO. 

QDROs: The basics

At its core, a QDRO is a domestic relations order, meaning a judgment, order or decree made by a state court, state agency or other instrumentality vested with the necessary authority that both abides by the state's applicable domestic relations law and relates back to a specific divorce-related issue (i.e., property division).

In other words, a QDRO is essentially a legally binding document establishing the right of an "alternate payee" -- the former spouse -- to receive either all or a portion of ERISA-qualified retirement assets.   

For those unfamiliar with ERISA, it's a federal law establishing protective standards for participants in voluntarily established, private-sector retirement plans, including both defined benefit plans and defined contribution plans.

Defined benefits plans are those that promise to pay participants a set monthly benefit upon retirement (i.e., a pension), while defined contribution plans are those in which the employee and/or the employer make regular contributions to an employee's investment account (i.e., a 401(k)).   

We'll continue examining this complex topic in future posts, including what must be included -- and what must not be included -- in order for a QDRO to be considered valid.

Consider speaking with an attorney if you have questions about the division of retirement assets or would like to learn more about property division in general.

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Frank Family Law Practice
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