In divorce cases when pension, retirement, 401k plans, 403b plans, qualified annuity plans, Individualized Retirement Accounts (IRA’s) and other similar accounts need to be divided, the Internal Revenue Service (IRS) has created a tool called a Qualified Domestic Relations Order (QDRO). Special tools similar to this can also legally divide federal retirement benefits and military pension benefits, called a military pension division order (MPDO).
Setting aside retirement funds through a qualified retirement document allows funds to be transferred or set aside to the spouse who did not earn the funds (called the alternate payee) as though he or she earned them. This essentially allows funds to be placed or moved into the name of the other spouse without a qualifying event occurring (such that there would be a necessity to pay early withdrawal penalties and/or taxes owing on the amounts disbursed).
Being able to skillfully and appropriately draft the necessary retirement orders to transfer funds can pose challenges to divorce attorneys. It is important that your divorce attorney understand the federal law controlling pensions and retirement plans. For example, ERISA law requires the following in order for a document to qualify as a QDRO: (1.) that it satisfies the requirements of federal and state law, (2.) that it is consistent with the specific retirement plan’s rules, and (3.) that it pass approval with the skeptical and rigorous requirements (and often rather picky) attorneys who review QDROs on behalf of retirement plans, they serve as the legal counsel for the plan administrator. At Pingel Family Law we are happy to help you finalize all of the documents necessary to finalize your divorce, including Qualified Domestic Relations Orders (QDRO’s). However, some divorce attorneys do not feel comfortable drafting these documents and they refer them to other attorneys. We are also happy to help you complete these documents either at the client’s request or frequently, through referrals from other family law attorneys.
Frequently, the protective language and helpful provisions that we can include in the QDRO documents are limited by the language in the final settlement agreement or divorce decree/ divorce judgment. Please make sure that you select a knowledgeable family law attorney to assist you with preparing these documents as some of the advocacy necessary for achieving a successful outcome needs to occur during the course of your case process. It is important that your Marital Separation Agreement include enough details and proper terms to allow a QDRO specialist or other attorney preparing the documents to prepare a document that protects your interests. Often family law attorneys fail to negotiate or advocate for their clients to receive the benefits from a survivor benefit plan or other protective mechanisms. Generally, courts take the position that if they are not awarded through the final judgment or negotiated and agreed upon through a Property Settlement and Separation Agreement, they will not be awarded to the Alternate Payee after the fact.
A QDRO will, however, save you the penalty on funds transferred/withdrawn. Depending on the circumstance, the penalty will be anywhere from 10% to 20% of the total amount. In many circumstances, once the funds are made by QDRO transfer, even if the former spouse desires to withdraw some or all of the funds, the early withdrawal penalty can be avoided following the entry of a Qualified Domestic Relations Order (QDRO). Thus, for example, on a $100,000 share of retirement funds, saving a 10% penalty saves a substantial amount at $10,000.
The ability to transfer retirement funds, often one of the most significant assets in a marital estate, allows the court- and the parties through settlement or mediation- substantial flexibility in developing and determining creative solutions to transfer funds without affecting tax issues or penalties.
In simple terms, when a QDRO is entered, it requires the employer or plan administrator of the retirement plan to create a separate account in the other spouse’s name that holds that spouse’s funds or entitlements, together with earnings (gains or losses) that are realized on the money. Over many years, the anticipated gains on retirement funds can be substantial, even on a modest amount of money initially.
Is There a Time Limit for Filing a QDRO After a Divorce?
Under Missouri and Kansas law, there is not a time limit, however, there may be arguments that after a ten-year period with no payments being made or transmitted, the court loses jurisdiction to enforce orders. Thus, it’s not worth the risk. Get your QDRO completed at the time the divorce case is being finalized and wrapped up. If the participant in the plan dies before the retirement division order is completed, it can create complications or even serve to prevent the former spouse’s access to funds that they have been awarded through a divorce judgment.
Let our skilled attorneys at Pingel Family Law help you with the preparation of your retirement orders, as well as all of the other needs in your family law case. Call us today to schedule a consultation so you can put our knowledge and experience to work for you (816) 208-8130.
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