Post-Divorce – Don’t forget to file your Qualified Domestic Relations Order (QDRO)
A Qualified Domestic Relations Order (“QDRO”) is an important part of the divorce process where the parties are allocated a portion of each other’s retirement accounts. If the parties are unable to mutually agree on the division terms, New York law provides that each party is entitled to the marital share of the other party’s retirement. Marital share is defined as 50% of the amount that accrued during the marriage, and applies to any 401(k), 403(b), deferred compensation, IRA, or pension account.
Although the divorce decree will dictate the amounts to be awarded to each party, that does not automatically effectuate the transfer of retirement accounts. All IRS qualified retirement accounts are subject to the federal Employee Retirement Income Security Act (“ERISA”). Among other things, ERISA protects retirement accounts from creditors as well as prevents account holders from assigning or pledging the accounts as collateral for a loan or other obligation. This protection also relates to the beneficial tax treatment of retirement accounts.
Both federal and state laws recognize a QDRO, which allows for the transfer of part or all of a retirement account to a former spouse that would otherwise be impermissible under ERISA if the parties were not divorced. QDROs also allow the retirement funds to be rolled over from one former spouse to the other without the tax consequences usually associated with early withdrawals.
The preparation of a QDRO is a separate process after the divorce is final. Each retirement account or pension requires a separate QDRO. For a variety of reasons, it is not uncommon for people to delay the preparation of the QDRO. It is important to minimize the delay for a few reasons, not the least of which is to prevent a former spouse from spending the money before it is transferred, or to begin taking pension distributions that may lock out certain elections available only at the time of retirement that the former spouse would otherwise have been entitled to make. Another concern is that the funds may not be invested in a way that benefits future retirement, that is, a former spouse cannot control the investment elections of a retirement account until the funds are rolled over pursuant to a QDRO.
There are 2 parts to the QDRO process. The first is to have the plan administrator review and approve the proposed language allocating the division so that it complies with both the plan provisions as well as state and federal laws. The second part is to present the QDRO to the state court to ensure that it mirrors the terms of the divorce decree. After both steps are complete, the court will sign the QDRO, and once the plan administrator receives the signed QDRO, the division of the account or pension can then occur.
McConville Considine Cooman & Morin can assist you with the QDRO process after divorce. If you or a loved one has been awarded part of a former spouse’s retirement account or pension and have not yet obtained a QDRO, now is a great time to take care of this important financial process. If you would like to schedule a consultation on QDRO filing, please contact Mikal Krueger, at mkrueger@mccmlaw.com or (585)512-3546.
This publication is intended as an information source for clients, prospective clients, and colleagues and constitutes attorney advertising. The content should not be considered legal advice and readers should not act upon information in this publication without individualized professional counsel.
About MCCM
McConville Considine Cooman & Morin, P.C. is a full-service law firm based in Rochester, New York, providing high-quality legal services to businesses and individuals since 1979. With over a dozen attorneys and a full paralegal support staff, the firm is well-positioned to right-size services tailored to each client. We are large enough to provide expertise in a broad range of practice areas, yet small enough to devote prompt, personal attention to our clients.
We represent a diverse range of clients located throughout New York State and New England. They include individuals, numerous manufacturing and service industry businesses, local governments, and health care professionals, provider groups, facilities and associations. We also serve as local counsel to out-of-state clients and their attorneys who have litigation pending in Western New York courts. For more information, please contact us at 585.546.2500.