How QDROs divide retirement plan benefits in Tennessee divorces
One of the most complex property division issues in a divorces is allocating benefits from the retirement plan of one or both spouses. The question becomes especially difficult if both spouses have been employed and have contributed to their respective retirement plans or if one spouse has an especially lucrative plan compared to the other spouse. One method of resolving these questions is the entry in the divorce court of a Qualified Domestic Relations Order, commonly called a QDRO (pronounced “quad-ro”).
QDROs were created by Congress’ enactment of the Employee Retirement Income Security Act of 1974 (“ERISA”). As defined in the statute, a QDRO “creates or recognizes the right of an alternate payee’s right to receive all or a portion of the benefits payable with respect to a participant under a plan.” In plain English, a QDRO is a court order that requires the payment of a specific portion of retirement plan benefits to the divorced spouse of the plan’s beneficiary.
Creating a QDRO can be complex. First, the divorcing couple must agree on how the retirement account benefits will be divided. If both spouses have a plan, and if the benefits are roughly equal, each spouse may elect to waive any claim on the benefits payable to the other spouse. But if the benefits under one plan, usually the husband’s plan, are significantly greater than the benefits under the plan owned by the other spouse, the parties or the court must make an allocation. If the parties are not able to agree on how to divide the benefits, the court must enter an order determining the allocation. Next, the order must be submitted to the administrator of the plan to ensure that the proposed division is “qualified” under ERISA and the terms of the plan itself. If the QDRO is approved, the court’s order is entered in the divorce court, and the plan administrator must thereafter make payments of benefits under the plan to each of the former spouses as directed in the QDRO.
The drafting and enforcement of a QDRO must satisfy three federal statutes: ERISA, the Internal Revenue Code, and the Retirement Equity Act of 1984. In high asset divorces, this task should not be attempted by the parties without obtaining legal advice. An attorney who specializes in handling high asset divorces can provide advice regarding the likelihood that the court will approve the proposed QDRO, whether or not the proposed order complies with the retirement plan in question and whether the proposed order satisfies the requirements of the applicable federal statutes.