How important is a QDRO?

San Diego residents who need to use retirement funds to pay spousal or child support or satisfy property division plans may need to use a QDRO.

With California being a community property state, people in San Diego who get divorced know that the property division portion of their divorces can be complex. Getting soon-to-be former spouses to agree on how to split assets is one piece of the equation. In many cases, an additional hurdle must be overcome when certain types of retirement accounts need to be split between both parties. This is where a Qualified Domestic Relations Order may come into play.

What a QDRO does

As explained by the U.S. Department of Labor, a Qualified Domestic Relations Order legally identifies another person as a payee on a specific retirement account. Because these accounts are held in only one person's name, even for married people, this is necessary when money is to be paid to anyone other than the plan owner.

A QDRO can be used to allow money to be taken from an account and paid to another spouse as part of a marital estate division agreement. It may also be used to facilitate payments from one person to another for spousal support awards or for child support awards.

A Qualified Domestic Relations Order is not applicable or required with every type of retirement account. Fox Business explains that only those plans which are ERISA-qualified must use the QDRO when making payments to other parties. Assets like stock ownership, Individual Retirement Accounts and others can be split or accessed without a QDRO. In addition, we commonly see QDROs utilized to split military retirement benefits.

How it works

If used for ERISA-qualified pensions, the Pension Benefit Guaranty Corporation indicates that once a proposed plan is in place, the PBGC will review it to ensure it meets all federal requirements. If these requirements are met, the PBGC will approve it, resulting in a QDRO.

QDROs can be utilized even when a divorce is not taking place such as when two people have a child together but were not married and child support has been ordered. A QDRO can even be established after a person dies. However, if associated with a divorce, Forbes recommends making sure that a QDRO is approved before the divorce settlement has been completed and approved.

Provisions for the unexpected such as the death of either spouse before distributions are completed should be part of any good QDRO. Payments can be made to spouses, former spouses, children or dependents. If a minor or even an adult has a legal guardian, it may be possible for payments to be made to the guardian for the purposes of the minor or incapacitated adult.

Professional input is recommended

The details involved in a Qualified Domestic Relations Order can be complex. If not properly completed, there can be serious tax implications for one or both spouses. For these reasons, it is recommended that Southern California residents always work with an attorney when a QDRO is needed.