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Why preparing a Qualified Domestic Relation Orders (QDRO's) early will be beneficial.

December 4, 2018

 

The Surprising Scope of QDROs

 

A major focus of this month has been how property rights

to a benefit plan are acquired. Usually, this occurs after the dissolution of a marriage though, you may be surprised to know that this is not the only way for rights to the plan to transfer. In fact, these plans can actually be used to fund a divorce! It is lesser known secret that Qualified Domestic Relation

Orders (QDROs) can be acquired and used in a number of ways. Through a QDRO, a non-participating spouse in a benefit plan can compel the participating spouse to pay for child support, attorneys’ fees, or even use it as a tool to deal with many other marital property right disputes.

 

How can I use a QDRO pre-divorce?

 

I cannot stress enough the importance of finding an attorney who is knowledgeable of state law as QDRO procedures can differ from state to state and from retirement plan to retirement plan. That being said, some states have given non-participant spouses many tools in dealing with

QDROs, both before and after divorce. Notably, some states have made official pre-divorce judgements that use a QDRO to cover multiple needs of the non-participant spouse.

 

Courts have allowed many areas where the use of a QDRO is appropriate. These include:

  • Payment of spousal maintenance/alimony

  • Payment of child support and arrearages

  • Payment of attorneys’ fees accrued in the compelling of compliance support order

 

Remember the Importance of Starting Early!

 

Over the course of this topic, I have stressed how important

it is to begin this process early. While it is possible to obtain a QDRO later in the divorce proceedings, it is imperative that you begin as early as possible to avoid a legal headache. Now, many benefit plans have provided reasonable procedural measures to prevent the non-participant spouse from a loss of

retirement benefits. It is important that you and a lawyer obtain a copy of the benefits plan provisions, as each plan can be different. Keep in mind, that

there are often windows of time in which the QDRO will not be administered. Some plans institute a hold on any retirement benefits once they have determined that a QDRO is being sought. Now, this should be considered a good thing even though payments are not being dispersed. This protects an

alternate payee’s interest from issues such as bad investment decisions, loans, or a hardship withdrawal. Therefore, it is important that the retirement plan be notified as soon as possible that a QDRO is being sought and letting them know that you are requesting a hold.

 

No Matter How You Acquire It, It Can Be Taxed

 

Among the issues that are often handled in family law are those related to property and tax. A QDRO cannot change how federal taxes are paid. Plainly stated, tax responsibilities have been held to be nontransferable. If it’s your money, then it is your problem. Also, any distributions the alternate payee receives and is considered to be part of his/her income. However, it should be noted that there can be tax deferrals that apply.

 

Things to Consider:

 

QDROs are often times not considered the most pressing of is

sues in divorce proceedings. However, it is vital to have these QDROs in your peripherals from the very beginning. Solid planning can ensure that these orders are strategically used both pre and post-divorce. However, ignoring this can potentially leave the non-participant spouse high and dry. So remember: Prepare early, find someone knowledgeable of your state’s laws, and learn all you can about the specifics of the retirement plan. Following these steps can make this process seamless and leave you in a flexible position moving forward.

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