What is a QDRO?

Hand putting Coins in glass jar with retro alarm clock for time to money saving for retirement concept

And Why do we need it?

By Travis Clark, Esq.

If you are going through a divorce, contemplating a divorce, or have gone through a divorce, you may have experienced, or are learning that your retirement savings and accounts are subject to an equal division by the court, up to one half the monies deposited and the incomes generated during marriage.  (If you engaged a prenuptial agreement and addressed this issue, this article may not apply to you.)

Q.D.R.O.

Q.D.R.O. stands for “Qualified Domestic Relations Order,” it is a specially drafted order necessary to divide a qualified retirement plan.  Why is this?  Qualified retirement plans, such as a 401k, are governed by Federal Law.  Divorce is a creature of state law.  These are two separate sovereigns.  Unless the United States Constitution permits the Government to tell us how to act, Government rules and regulations apply federally, not stateside. This also works in reverse, the State of Nevada cannot tell the holder of a qualified plan to divide the asset, we must ask nicely under a QDRO, and the plan administrator (assuming all is in place) will honor the QDRO.

Qualified plans are governed by ERISA (The Employee Retirement Income Security Act of 1974).  This is a federal law.  Thus, a divorcing litigant who is required under state law to divide a qualified plan must engage a QDRO.  A QDRO creates a right by the alternate payee (the non-participant spouse) to receive a portion, or more, of the asset upon divorce.  The plan administrator, in most instances, will review the draft QDRO and provide feedback or approval of the draft sufficient for filing in the divorce case.  Once the Judge in your matter executes the QDRO, the QDRO is then sent to the plan administrator and the alternate payee will have their own account opened and a portion (or more) of the assets will be rolled into said account.  This “rollover” is not a taxable transfer if done in the context of divorce.

Remember that under Nevada law ALL assets earned during marriage from the blood, sweat or tears of one of the spouses is community property and is subject to an equal division.  NRS 125.150(1)(b).

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