Often in a Texas divorce the largest assets divided, second to a house, are retirement plan benefits like a 401k or pension. Unlike most assets which can be divided in the divorce decree, many of these retirement plans require a special order to divide the plan assets between employee and former spouse. These special orders are highly technical and failing to draft the orders accurately can result in an incomplete property division from your divorce. Your Texas divorce attorney might handle drafting this order. Some family law firms hire special QDRO lawyers to draft the order for you.
QDROs can create long term challenges after a divorce due to the technical rules around their drafting and their impact on plan benefits. Hiring a QDRO lawyer who understands retirement plans can be critical to securing your retirement benefits after a divorce. QDRO is a Qualified Domestic Relations Order.
What is a QDRO?
A QDRO is an order issued under Texas family law after a divorce to divide an employer-sponsored retirement account. Assets contributed or accrued in a retirement plan during a marriage are community property in Texas and subject to division. The QDRO allows the employer’s plan to divide account and provide a portion to the non-employee spouse. QDROs are complex orders. They must comply with both the divorce decree signed by the family court and the retirement plan’s rules for distributions.
The difference between a well constructed QDRO and a generic order can be hundreds or even thousands of dollars. Few family lawyers have actual experience working with the retirement plans to make sure the order is drafted advantageously. A poorly drafted order may not meet the plan’s rules.
Therefore the plan cannot divide the assets and pay them to the non-employee spouse (known as the “alternate payee”). This can cause delay in dividing the assets. If the plan cannot determine that the order meets the plan rules then the order is worthless. The plan cannot lawfully divide assets to the alternate payee until an order meets the plan rules.
Steps to divide a 401k or pension with a QDRO in a Texas divorce
- Family court signs a divorce decree that includes the division of retirement plan assets.
- The family court signs a Domestic Relation Order that commands the plan to divide the plan based upon a formula specified in the order.
- The order is submitted to the plan for review and processing.
- The plan administrator has up to 180 days to review the order and determine whether it meets the plan rules.
- The plan administrator either qualifies the order and begins processing the division or rejects the order because it does not meet plan rules.
- If the order is rejected the plan will not divide the account and you must return to court for the judge’s signature on a new order and resubmit it to the plan for review.
- If the order is qualified by the plan administrator then the plan assets will be divided based on the order and distributed or assigned to the alternate payee based on the QDRO terms.
Dividing other retirement assets in a divorce
Other employee benefit plans, such as executive compensation and stock plans, can be segregated by a similar order but they do not have the Q in QDRO because the benefit plans are not qualified plans under ERISA and IRS regulations. These orders are also domestic relations orders (DROs) and the same issues can arise if these orders are not properly drafted.
The rules on these plans may be even more complex than a 401k plan and require advanced understanding of ERISA and other benefit plan regulations to efficiently complete the division of these assets. I also have experience working with executive compensation plans and can assist in drafting these orders.
Even minor problems with QDROs can spiral into major problems and major headaches for everybody involved. The result is that lots of money and time is wasted in court trying to solve these problems. Although working with an experienced QDRO lawyer is no guarantee that the problems will melt away, working with an attorney experienced with QDRO issues can greatly improve the probability that your problems will be resolved in a more efficient manner.
Additional Texas QDRO resources
- What retirement plans can you divide with a QDRO?
- Enforcing child support awards with a QDRO
- Dividing retirement plans with QDROs
- Can I take my retirement money out early with a QDRO?
- 10 keys to tackling a defined benefit plan with a QDRO
- AT&T benefits and QDROs
- Shared interest vs. separate interest QDROs