QDRO/Order of Division Instructions To Divide Retirement or Pension Accounts As Part of a Divorce
Use this guide if you want to divide your retirement or pension accounts and you aren't sure where to start.
What is it: A Qualified Domestic Relations Order (QDRO) is a document that says an account can be divided between two parties without paying taxes.
What does it look like: A QDRO is very similar to the documents that you fill out at the doctor's office. There will be some personal information to identify the parties involved, and a sentence or two that will explain how the money can be divided. It's usually about one page. Both parties sign the document. The document creates a court record that will confirm the money was property distributed as part of a division of community property.
Do you need a QDRO: Your retirement accounts can be divided in two ways under federal rules. Either 1) A general final order from the court, called a decree. Or 2) A specific final order, called a QDRO, or in cases of federal or state employee funds, called a DRO. (The term QDRO only applies to accounts that fall under the ERISA Act). Both the final decree (form 241 in Washington) and the QDRO are signed by a judge. You will want to find out which the plan administrator needs before you finalize your divorce. To find out, you can just call and ask. Many large firms also post QDRO directions online. The plan administrator will ask you to give them one of two types of forms. You will be asked for either: 1) A document that you give to the court for a judge's signature usually called a QDRO (for retirement plans that fall under ERISA) or an Order of Division. 2) Or the signed Form 241 that the court gives to you in making a record of the divorce. Some states call the Form 241 document the Divorce Decree but Washington only has a Form 241). Be very careful and specific about the difference between a final decree and a QDRO. A helpful clarifying question might be something like, “Does the order you need divide only our account? Is this a form that you have? Or does the order you need a standard court form that will be filed only with the court?” What you are trying to find out from the employees is whether you need a specific QDRO, or whether the plan will use the final decree (Form 241 in Washington). If the plan needs a specific document that divides only the retirement fund, then you will want to ask if the plan has a “sample wording” or otherwise needs a specific new document created. If you are getting a separate form, then you need a QDRO. Again a QDRO is just a simple form similar to what you would see in a doctor's office used for your medical records.
Common problems/delays: States vary on their practices. The call center employees at the fund that holds your money are given very general instructions that may or may not correspond to your state. The call center employee may direct you to get a “court seal,” to wait to get a QDRO after your divorce is final, to get a “wet copy,” or to get an “original document.” None of these will work in the state of Washington. Washington has mandatory electronic filing. The judge signs your QDRO before signing your final decree. Timing: If you need a QDRO, it will need to be signed before the judge signs your final decree. Washington has a 90-day waiting period after the petition is filed, before the court will accept your final decree. The court will sign a QDRO with your final papers. Or separately on its own before the final decree. If you wait and submit your QDRO after your final decree, then you may have to reopen your case, and this can be a hassle.
Background Information: A retirement or pension account uses before-tax dollars. This means the plan will have to follow federal laws for tax purposes. The plan administrator could get in trouble if they don't keep the right records for their accounts. When the plan administrator divides the account, they need to use particular words for their records, and they need to make sure they have a record of who got the money and how much it was, and so on. To get the right records, the plan administrator might ask for a document from you to allow the plan to divide the account. This sounds complicated but it's really pretty simple.
This is important and a lot of people get confused: Your QDRO/Order is not for you. It's for the plan administrator. The plan administrator will need to show the IRS and other federal agencies that they handled the money in their accounts correctly. The QDRO or other order is a record that basically says to the IRS or other federal agency, "No one was laundering money. We divided the account because of a divorce." And if your QDRO is wrong, you won't be the person to get in trouble. The plan administrator will. That's why you DO NOT want to pay a lawyer to write your QDRO for you. You're just paying a lawyer to do the work for the plan administrator, and the plan administrator probably won't approve the first draft anyway. People who pay a lawyer for a QDRO end up paying for a lawyer to ask the plan administrator how to write something the plan administrator will need. If you try to insist on having a QDRO individually written by a small law firm, your plan administrator may even charge you additional fees to review the form you paid for your lawyer to write. This is because the plan administrator fears the liability and knows any individual lawyer's insurance won't cover the funds in the whole plan if there's a mistake and the plan administrator gets in trouble. That's a lot of extra stress and expense for you, and you're not the person who'd be in trouble if the plan administrator screws up on the form. It's easier to just let the plan administrator give you the form with the wording they want to use.
Quick tips:
- The DRS and most other state-level benefit plans in Washington can give you a letter describing the “community share” of your benefits. Knowing the part of your plan that could be divided in a divorce, called the community share, can help you and your partner to make a decision about what to divide. But be aware these letters often take months to get.
- You will need the social security or other tax identification number of both partners for a QDRO or Order of Division. Please be careful emailing this form around with your personal information.
- Please remember to ask the plan administrator (or any customer service rep for the plan) if they can approve your form in writing before you send it to the court. Sometimes the plan will update or change the wording they want to use for their record keeping, and this can cause delays if you've already filled out a form and had it signed by a judge. It's easier if you can make them tell you they'll take the form before you send it to the judge.
- If your plan doesn't have a form that you can fill out, but says they can't use “a court order” “decree” or other language describing the Form 241, then you can hire a QDRO writer for about $300. The QDRO writer will carry enough insurance to cover the entire benefits plan. The plan administrator generally cannot approve a plan written by a normal divorce lawyer who only carries about $1 million in liability insurance, because that won't cover the whole plan if there's a mistake. It's not a legal rule; it's just a risk that most plan administrators don't want to take. Don't pay an individual lawyer for this form unless you know the lawyer has enough malpractice insurance to cover an entire benefit or pension form.