What retirement plans can be divided by a QDRO in a Texas divorce?

Fort Worth QDRO LawyerQDROs–qualified domestic relations orders–are special court orders that divide certain types of employer-sponsored retirement plans as either part of the property division in a divorce, to pay child support, or to pay spousal support. Retirement plans that require a QDRO do so because a state or federal law requires this type of order to lawfully divide benefits.

Retirement Plans That Can Be Divided by a QDRO in Your Texas Divorce

There are many ways to categorize types of retirement plans but it is helpful here to divide retirement plans between private employer plans and public employer plans. Private employer plans may be subject to provisions of the Employee Retirement Income Security Act of 1974 (ERISA) that require a QDRO. Public employer plans are not subject to these ERISA provisions. They may, on the other hand, be subject to state or local laws that require a QDRO. To determine whether a plan requires a QDRO one must first determine whether it is a public or private employer’s plan.

Private employer plans subject to ERISA’s QDRO provisions include the vast majority of employer retirement plans. These include defined contribution plans like 401k plans, Employee Stock Ownership Plans (ESOPs), money purchase plans, many types of profit sharing plans and 403b plans. These also include defined benefit plans–commonly called pensions–that use a variety of formulas such as cash balance formulas.

Public employer plans may require a QDRO or a QDRO-like order to divide retirement benefits. These plans are state or local government plans that are subject to state constitutions, state statutes, state regulations, city charters, or city ordinances. For example, Texas state employees with benefits under a state plan can have their benefits divided by QDRO under provisions of the Texas Administrative Code. State and local governments can opt for different procedures but many require a QDRO or similar order.

Some IRAs and IRA-based plans can be divided by QDRO but do not require a QDRO by law. These accounts include standard IRAs, SIMPLE IRAs, SEP-IRAs and Keogh plans. ERISA and other Internal Revenue Code sections permit a QDRO to order the IRA custodian to divide the IRA assets but an IRA or IRA-based plan is not subject to all of the ERISA provisions that require a QDRO. Often IRA custodians only require a copy of any valid court order that orders the division plus their form.

Retirement Plans Not Subject to QDRO Division in Texas

The vast majority of employer-sponsored retirement plans are subject to QDROs. There are a number of types of plans that are not subject to QDROs and will not accept a QDRO. These include:

  • Non-retirement employment benefits such as health insurance, life insurance, bonus plans and some profit sharing plans. These benefits may be divisible in a divorce by other means.
  • Federal and military plans. These employer plans are not subject to QDROs. They have their own specific procedures and order language to divide benefits.
  • State and local plans that do not use or require QDROs. These plans likely include procedures to divide benefits just not through a QDRO.
  • Any stock plan that is not an ESOP, such as a stock purchase plan, stock grants and stock options. These benefits also may be divisible but through different means.
  • Nonqualified deferred compensation plans. These plans are made available to high level and high earning employees. They appear similar to other defined contribution or defined benefit plans subject to QDROs but are not subject to most ERISA requirements. These plans may accept domestic relations orders (DROs) that are not qualified under any legal rules, only plan provisions.

Determining If a Plan Will Accept a Texas QDRO

Generally there are four steps to complete to determine if a plan will accept a QDRO:

  1. Determine if the plan is a public employer or private employer plan;
  2. Determine the plan or benefit type;
  3. Request a copy of plan documentation;
  4. Review the plan documentation for rules to divide the benefit or assets.

It’s important to know the type of benefit plan before you start dealing with dividing benefits. A common mistake in divorces is not using the right procedure to divide retirement plans. Following the wrong procedure can result in considerable wasted time and resources. Often hiring a divorce attorney experienced with retirement plans can save you a lot of heartache and time dealing with these issues.

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