Qualified Domestic Relations Orders (quadro)
Many Americans have private, employer-sponsored benefit plans. People divorcing their spouse in Nevada need a legal instrument known as a Qualified Domestic Relations Order or QDRO (pronounced quad-dro) for dividing retirement account assets in a divorce. The IRS defines a QDRO as a judgment, decree, or order requiring that retirement plans pay child support, alimony, or marital property to a spouse, former spouse, child or other dependents.
A QDRO is a court order that notifies the benefit providers of the division of benefits between the divorcing parties.
For a correctly drafted, legally accurate QDRO for your divorce settlement, please contact the McFarling Law Group today at 702-766-6671.
Legal requirements of benefit plans
Nearly all current private employee benefit plans in the US must qualify and are subject to governance by the Employee Retirement Income Security Act of 1974 or ERISA, as well as the Retirement Equity Act of 1984. Both laws require certain domestic relations orders to be accepted and honored by ERISA-qualified pension or retirement plans.
Federal law considers any decree or judicial order a domestic relations order when addressing family legal matters of alimony, spousal support, child or other dependent support under local family law.
The order becomes “qualified” and enforceable by an ERISA-qualified plan when designating an alternate payee. The alternate payee is entitled to receive whatever portion of the benefits is ordinarily payable to a plan participant.
Hiring out QDRO Preparation Services For Help
Preparing a QDRO can be time-consuming and complicated, despite the straightforward documentation. Each ERISA-based QDRO has statutory requirements for specific information and terminology that is and is not acceptable. Thus, many Las Vegas legal firms hire another lawyer to prepare their QDROs for them.
Besides federal regulations, individual pension plans often adopt their own rules for determining whether a proposed QDRO qualifies. Some plans are very particular and will not accept a QDRO unless it fully complies with their provisions.
An experienced Nevada QDRO attorney from McFarling Law Group has the knowledge and experience required to handle various pension plan requirements. We can help draft a plan-compliant QDRO for your divorce case.
Contracting with other attorneys for QDRO preparation is a commonly accepted practice and can potentially reduce legal fees. However, many family law attorneys do not address retirement concerns in a separation agreement or in court.
Many retirement plans – including Nevada’s Public Employees’ Retirement System (PERS) – require a QDRO to divide retirement assets.
The State of Nevada uses a time rule or calculation when dividing retirement assets. The calculation determines the share of community property per spouse based on:
- How long a spouse has paid into the plan, and
- How long the parties have been married
Benefit providers require a submitted QDRO to pay a former spouse directly.
Because of their complicated nature and the potential for malpractice, QDROs are a potential legal quagmire for attorneys. Having a divorce decree is insufficient to claim retirement account assets; a QDRO is required. Clients who are unaware of this requirement could lose the opportunity to claim this benefit under certain conditions, especially if their attorney fails to inform them of this provision.
An experienced Nevada QDRO law firm like McFarling Law Group advises preparing a QDRO and the divorce decree simultaneously or immediately after filing, if necessary. We can assist attorneys and their clients with QDRO preparation for their case.
What is a defined contribution plan?
Defined contribution plans are employee retirement plans that usually consist of individual contributions by the employee, any contributions from the employer, and gains from plan investments. Currently available defined contribution plans include:
- Profit-sharing plans (employer contributions may vary based on company performance)
- Stock bonus plans (consisting of securities in the company)
- 401(k) plans (employee-selected contribution type: taxable or nontaxable)
- Money purchase plans (similar to profit-sharing with a fixed employer contribution)
The essential idea of these plans is that the employee’s fund balance belongs to them. These plans still require drafting a QDRO for legal division, which necessitates including specific terms and language to correctly divide each party’s share upon finalizing their divorce. How much is subject to division is determined either by contribution or the time rule formula.
Since 2003, McFarling Law group has helped clients draft QDROs and determine the appropriate division of 401(k) plans and other retirement accounts. An experienced Nevada quadro attorney will help you correctly prepare your QDRO. We will thoroughly review your documentation to ensure your QDRO is accurately delineated and the details thoroughly vetted.
401(k)
The majority of people are familiar with a 401(k) by name. These retirement savings accounts, named for their designation in the Internal Revenue Code, allow employer-created retirement plans to which employees may contribute a pre-tax portion of their wages. These retirement accounts have grown popular since their inception 30 years ago, replacing traditional employer-sponsored pension plans due to the potential tax burden.
While most employers administer their employees’ 401(k) accounts (unless the employer decides to use a benefit plan administrator), the majority of plans are participant-directed, which means that the employee has several options from which to choose to invest their retirement savings.
Employees usually choose their investments based on risk-tolerance and diversification. Many employees invest their retirement savings in a combination of mutual funds, bonds, stock, and money market accounts. Each person’s level of risk tolerance determines the types of securities they choose for investing, and how much of each kind.
Similar to other retirement plans, a 401(k) requires correctly drafting a QDRO to allocate each party’s allocation upon finalizing their divorce. Usually, the benefit is readily available, and many QDROs stipulate full disbursement in a lump-sum payment. The QDRO may also specify that the securities rollover to an alternate payee’s retirement account.
403(b)
A 403(b) retirement plan is usually only available to public education organizations and some non-profit organizations, including 501(c)(3) organizations and self-employed ministers. Similar to the 401(k), it treats employee contributions as pre-tax salary deferrals, allowing distributions to grow tax-deferred until withdrawing the funds. Requirements for accounting and annual reporting to the IRS for 403(b) plans are considerably less stringent.
Defined Benefit Plans
Employer contributions typically fund defined benefit plans or pension plans. Some plans also encourage employee contributions. Defined benefit plans provide specific benefits to the retiree, usually a monthly annuity for life. These plans are available in both the public and private sectors. Typically, employee earnings are the basis of employer contributions.
Can I get a QDRO without getting divorced?
McFarling Law Group law offers a service option for people requiring more flexibility with their retirement funds but who are not divorcing. Penalties for early withdrawal can tie up your funds in an underperforming 401(k). An intra-marriage QDRO can move funds from the underperforming 401(k) into an IRA belonging to the other spouse.
This option allows married couples more flexibility in their financial planning without a divorce. While not a widely known or established option in Clark County, McFarling Law Group has successfully filed and received approval from the court for many couples.
Do I need a lawyer to prepare a QDRO?
An attorney is not legally required to prepare a QDRO, but it is strongly recommended. Benefit plan administrators often have a QDRO form they encourage participants to use. However, the language on these forms frequently reflects the interests of the benefit plan, not the participant or their beneficiary. While some forms are better than others, many have standard provisions depriving alternate payees of retirement benefits an independently composed QDRO addresses.
Contact a Nevada QDRO law firm today
If you or your attorney require a correctly drafted, legally accurate QDRO for your divorce settlement, please contact the firm of McFarling Law Group today at 702-766-6671.