Qualified domestic relations order (QDRO)

What a QDRO is

Retirement benefits generally cannot be assigned to anyone else. A QDRO is the exception, used in divorce and support cases. To qualify, the order must name the participant and each alternate payee, the plan, the amount or percentage to be paid, and the period it covers. It cannot require a form of benefit the plan does not offer.

Why it matters to employers

The plan administrator must have written QDRO procedures, tell the participant and the alternate payee when an order arrives, and decide within a reasonable time whether it qualifies. While the order is under review, the amount at stake has to be accounted for separately. Until an order is qualified, the plan cannot pay the alternate payee. A spouse or former spouse who receives a QDRO payment can roll it over, and the 10% early withdrawal tax does not apply to QDRO payments from the plan.

Example

A divorce order awards a former spouse 50% of a participant’s $120,000 balance. After the plan administrator qualifies the order, $60,000 is moved to a separate account for the former spouse, who rolls it into an IRA.

Common mistakes

• Paying on the strength of a divorce decree that has not been reviewed and qualified.

• Having no written QDRO procedures.

• Letting the participant withdraw or borrow the disputed amount while an order is pending.