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QDRO Errors To Avoid

12/12/14

When you get divorced your spouse is going to want a percentage of your 401k or your pension plan. Enter the QDRO. QDRO, (pronounced QUAD row).  This is a Qualified Domestic Relations Order, which is a legal document instructing how to split a 401k plan or pension plan, retirement account, between an employee and a former spouse or child.

A QDRO will instruct the 401k or pension plan on who to split the account with and how much. For example, if you are getting divorced and you are entitled to 50% of your former spouses 401k, then you would need a QDRO that states you are going to get 50% of the 401k. In order for a QDRO to be a QDRO it must be signed by a judge.

However, just because you have a judge who signed the QDRO, doesn’t mean that you will get any money. Once the judge has signed the QDRO your 401k Plan administrator or pension plan administrator must approve it. If your Plan administrator denies the QDRO, it must go back to the attorneys who must amend the QDRO and have the judge resign it.

Obtaining a QDRO can be time consuming and getting your money can take even longer as some attorneys may not be well-versed in retirement plans.

Here are some frequent QDRO errors to avoid.

Many attorneys learn the hard way that some plans don’t need a QDRO. Contrary to popular belief, you do not need a QDRO to divide an Individual Retirement
Account (IRA). Other plans like Non-Qualified Deferred Compensation Plans, the Thrift Savings Plan, Federal Employees Retirement System(FERS), and Civil Service Retirement System (“CSRS”)) also do not need a QDRO.

Not only are QDROs not required for a Non-Qualified Deferred Compensation Plan, but a Non-Qualified Deferred Compensation Plan can’t be divided. Non-Qualified Deferred Compensation Plans usually involve insurance and the insurance company can’t give you 50% of the policy or the cash value.

Believe it or not, knowing the correct name of the 401k or pension plan is critical error. If your QDRO states that you will be entitled to 50% of your former spouses pension under the ABC Retirement Plan, you might not be entitled to anything if the ABC Retirement Plan doesn’t exist. Make sure your QDRO refers to the exact legal name of the retirement plan.