QDRO’s are a source of lots of confusion for clients (as well as many attorneys).  Here are some answers to questions I get on a pretty regular basis:

What is a QDRO?

A QDRO is short for “Qualified Domestic Relations Order”.  It is a court order that is usually signed by both parties (making it a “consent” order) that is necessary whenever two parties are dividing up a Qualified Plan Account or Pension Plan in a divorce.  The QDRO will direct the plan administrator or custodian to make a distributive payment (similar to rolling over money in an IRA) to the spouse, which they will in turn deposit into their own retirement account, free from penalties or taxes until they withdraw the money.

Why is a QDRO necessary?

If a spouse attempt to distribute money from a Qualified retirement plan without the assistance of a QDRO, they run the risk of the IRS treating the distribution as a taxable event, and possibly also getting hit up for a 10% early withdrawal penalty.  For this reason, we sometimes counsel our clients to distribute money from IRA’s (a non-qualified plan) using a DRO, or Domestic Relations Order.

Do you handle QDRO’s?

Yes, my law office prepares QDRO’s on quite a regular basis.

How much does a QDRO cost?

That depends in large part on the plan administrator.  Some are easier to work with than others.  The more difficult the plan administrator, the higher the cost.  My office will generally charge a refundable trust deposit and bill against that at our normal hourly rate.  For some plan administrators that we know to be easy to work with, we will charge a flat fee.  In addition, the plan administrator may charge a fee to review and pre-approve the QDRO, and there are also court fees for filing a new case.

When do I need a QDRO?

If you have a pension, qualified plan, or other type of retirement account that is getting divided in your divorce, than you probably need a QDRO.  If you can avoid dividing the pension or retirement account, then you will not need a QDRO.

What is your approach to preparing a QDRO?

I realize from experience that every plan administrator is different and wants different language in their Order.  For that reason, I believe in contact the plan administrator early in the process to figure out exactly what they need to complete the QDRO.  If they have special language or forms, I want to know that.  Once I have completed the first draft of the QDRO, I will send it to the client to approve and then send it on to the administrator for final approval.  Only after I receive it back completely approved will I file the court action to have it entered.  How quickly the plan administrator works to review the document will dictate how long it will take for the QDRO to get entered.

What information do you need in order to prepare a QDRO?

Typically, we need the name and address of each of the parties in the divorce action.  In addition, we need a copy of a recent statement that provides the contact information for the plan administrator, and a copy of the property settlement agreement that details how the retirement account will be divided, in addition to a statement that the QDRO is being established under North Carolina’s domestic relations laws and Section 414(p) of the Internal Revenue Code.