What the heck is a QDRO? 3 questions you must ask your divorce lawyer

A QDRO is a court order that divides a retirement account such as a 401(k) or pension plan.  Technically it is a Domestic Relations Order (DRO) that has been approved, or qualified, by the plan administrator of an employer-sponsored retirement plan.

Domestic relations orders are required when dividing retirement accounts that are covered by the Employee Income Retirement Income Security Act of 1974, known as ERISA.  This is basically all private-sector retirement plans.  If you want to get into the weeds, read Section 414(p) of the Tax Code.

This brings up two unfortunate facts:  (1) most lawyers are repelled by any mention of the Tax Code, and (2) most lawyers can’t do math.  Consequently, this is an area of the law that is rife with malpractice.

Here are the questions you need to ask your lawyer:

  1. If you contributed to your 401(k) before you married: Can you calculate the present value of my premarital money?
  2. If you need to divide a pension plan: What is the difference between a shared interest and a separate interest?
  3. What is this going to cost?

The first question is the biggest problem.  Divorce Lawyers commonly subtract the balance at marriage from the balance at divorce and then divide the resulting amount by two.  Failing to consider market appreciation, dividends, and interest on premarital money can, and does, result in a disproportionate award that costs the participating spouse tens of thousands of dollars.

The second question goes to whether the receiving spouse (the Alternate Payee) will be eligible for a continued pension benefit if he or she is predeceased by the contributing spouse.

If your QDRO lawyer cannot answer these questions to your satisfaction, call us.

As to the cost, we prepare DROs for $350.00.  Other lawyers routinely charge up to $1,500.00, and they often get it wrong.

QDROs do not apply to military pension benefits, but nonetheless, a separate order must be prepared, processed, and submitted to the Defense Finance and Accounting Service (DFAS) with the requisite DD forms that most lawyers have never heard of.  There are relatively short timelines involved that, if missed, result in an absolute waiver of important rights.

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