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Here is some background information about how QDROs work:

Pension plans and retirement accounts are property

Courts routinely transfer a portion of a worker spouse's property interest in a pension plan or retirement account to the other spouse. Most pension plans and retirement accounts are controlled by a pension plan administrator, not the worker, and are subject to extensive governmental regulation. The pension plan administrator controls when and how a pension plan benefit or retirement account is paid out to the worker.

Life before QDROs. It was worse, believe it or not

QDROs did not exist before 1984. Before then, divorce courts routinely ordered the worker spouse with the pension benefit to send the other spouse a portion of the pension benefit each time the worker spouse received a pension check. There were a number of problems with this system, particularly when the monthly pension checks to the worker spouse began to be paid 15 or 20 years after the divorce was final. Worker spouses sometimes would lose track of their former spouse over the years. Former spouses were sometimes forced to bring costly court proceedings to have an uncooperative worker spouse held in contempt of court for failing to forward the share of the pension checks.

And then there was the question of income taxes. Most monthly checks from pension plans and lump sum distributions from retirement accounts are subject to state and federal income taxes when the money is paid out. Before 1984, all of these pension payments were reported to the IRS as income of the worker spouse. Disputes often arose about how to determine the former spouse's share of the monthly check and about how to shift the worker spouse's income tax burden on the pension benefit to the former spouse.

And last but not least, there was the question of survivor benefits: How to protect the former spouse if pension checks stopped (or were never paid at all) because the worker spouse died first. This process kept divorced spouses entangled financially and emotionally for decades after their divorce. The whole situation was, frankly, a mess.

QDROs are created in 1984

In 1984, many things changed for the better when Congress passed the Retirement Equity Act. This federal law created a completely new legal mechanism that state courts could use when dividing pension plans in divorce called a "qualified domestic relations order" or QDRO. A QDRO is a legal document that must be filed in a court and signed by a judge. If the applicable legal requirement for a QDRO are satisfied, the pension plan administrator (not the worker spouse) becomes obligated under federal law to send the former spouse's share of the pension benefit directly to the former spouse. The former spouse (not the worker spouse) becomes responsible for income taxes on the share received from the plan administrator pursuant to the QDRO. This change in the law was a huge improvement, because it allowed the two spouses to go their separate ways at the time of the divorce. It enabled them to financially disentangle themselves from each other with respect to the pension plans and retirement accounts at the time of the divorce.

QDROs for private employer pension plans

The legal requirements for a QDRO are set out in 29 USC §1059(d)(3). It is in this statute that the words "qualified domestic relations order" first appeared in US law. Those legal requirements apply solely to private employer pension plans. The overwhelming majority of employer sponsored pension plans in the United States are private employer plans. So, the legal requirements in this statute cover the vast majority of pension plans and retirement accounts.

"QDROs" for government employer pension plans

What about federal government employer pension plans and retirement accounts? Over the years, Congress has enacted a variety of separate and distinct legal mechanisms for state courts to use when dividing the various federal worker pension plans and retirement accounts in divorce. Each legal mechanism has different applicable legal requirements. The applicable legal requirements are scattered throughout the United States Code and the Code of Federal Regulations. The applicable legal requirements are not the legal requirements set out in 29 USC §1059(d)(3) that apply to private employer pension plans.

Over the years, many states, counties, and municipalities have also created a variety of separate and distinct legal mechanisms to divide the various pension plans offered to their public sector employees. Each legal mechanism has different applicable legal requirements. The applicable legal requirements are scattered throughout the statutes and administrative rules of the fifty states and charters of the various counties and municipalities. However, the applicable legal requirements are not the legal requirements set out in 29 USC §1059(d)(3) that apply to private employer pension plans.

"QDRO" as shorthand for a legal document filed in court that results in direct payment and shifts tax burdens

The differences among the various legal mechanisms used to divide private employer and government employer pension plans cannot be understated. The methods used to define the former spouse's share of the pension benefit or retirement account, the approach used to create the former spouse's entitlement to a separate share, the former spouse's rights with respect to timing of the benefit distribution, the form of the benefit distribution, vesting, and survivor benefits in the event of the worker spouse's death, are but a few examples of those differences.

The legal mechanisms used to divide both private employer and government employer pension plans and retirement accounts have this much in common: they require the preparation of a legal document that must be filed in a court and signed by a judge. If that legal document satisfies applicable legal requirements, the pension plan administrator or government agency (not the worker spouse) becomes obligated under law to send the former spouse's share of the pension benefit directly to the former spouse. The former spouse (not the worker spouse) becomes responsible for income taxes on the share received from the plan administrator.

Lawyers and judges commonly use the term "QDRO" as shorthand for the legal document that creates this direct payment obligation and tax shifting outcome. This practice is harmless if everyone understands that the applicable legal requirements for the "QDRO" vary depending on the type of pension plan or retirement account involved. Unless the context indicates otherwise, QDRO is used on this website as shorthand for a legal document that creates this direct payment obligation and tax shifting outcome.

Downloads:

Release that gives QDRO-law access to pension plan information.

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