If you’ve been researching QDROs, you’ve probably come across a lot of acronyms, terms, and legalese that cause confusion (and maybe a headache or two). In this article, we’ll break down the jargon and provide clarity on various terms related to Qualified Domestic Relations Orders (QDROs) and retirement plans.
Participants, Nonmembers, Payees, and More
First, it’s important to understand how you will be referred to during the process (and in our resources):
- If you are the employee with the retirement plan being divided, you will be referred to as the participant, the employee, or the employee member.
- If you are the spouse who will be taking funds from your ex’s retirement plan, you will be referred to as the nonmember, the alternate payee, the payee, or the former spouse.
Defined Benefit Plan
Offered by public and private employers, this type of retirement plan is either:
- A traditional pension or retirement plan that pays monthly over time once you start taking your benefits.
- A cash balance plan that provides a lump-sum payment with the option to receive monthly payments over time.
Defined Contribution Plan
Offered by public and private employers, a defined contribution plan deposits pretax money directly into an account for each employee. Contributions may be made by the employee, the employer, or both. The retirement plan could be any of the following:
- A 401(k) plan
- Profit-sharing plan
- Savings plan
- Money purchase pension plan
- Employee stock ownership plan
- 401(a) plan
- 457(b) plan
- 403(b) plan
- Tax-sheltered annuity
- Thrift plan
- Deferred compensation plan
Domestic Relations Order (DRO)
A domestic relations order (DRO) is a court order that requires the division of a public retirement plan. This applies to state, federal, and military employees.
ERISA stands for the Employee Retirement Income Security Act of 1974. All qualified retirement plans are governed by ERISA. This federal law has a subsection that allows for direct payment of a retirement benefit to a former spouse for marital or community property or for child or dependent support.
A joinder is a California-only procedure. In this process, the retirement plan is made a party to the divorce by filing “joinder pleadings.” The pleadings formally put a retirement plan on notice that there may be a marital property claim against those benefits.
You must “join” the retirement plan in a dissolution action before the domestic relations order will be processed. This applies to all California public plans and some private plans if the rules require it. Most private plans governed by ERISA do not require the service of joinder pleadings.
Notice of Adverse Interest
A notice of adverse interest provides notice to a plan of a divorce or pending divorce. In many cases, this triggers a hold on the plan benefits until a QDRO is served on the plan.
Navigating the world of QDROs and retirement plans can be overwhelming, but understanding the key terms and concepts can make the process smoother. Whether you are a participant or a nonmember, knowing the distinctions between defined benefit and defined contribution plans, as well as the significance of a domestic relations order and ERISA, is crucial. Additionally, being aware of unique procedures like joinder pleadings and notices of adverse interest can help you prepare for the necessary legal steps.
- What is a QDRO? A QDRO, or Qualified Domestic Relations Order, is a legal order that divides retirement assets between divorcing spouses.
- Can a QDRO be modified? Yes, under certain circumstances, a QDRO can be modified or amended.
- Is a QDRO required for all divorce cases involving retirement plans? No, a QDRO is only necessary if the divorce involves the division of a retirement plan.
- Can a QDRO be used to collect child support or alimony payments? No, a QDRO is specifically for the division of retirement plan assets and cannot be used to collect support payments.
- Is it possible to have multiple QDROs for one retirement plan? Yes, depending on the specific circumstances, a retirement plan may be subject to multiple QDROs for different divisions or purposes.