Alabama divorce law requires the parties to a divorce to equitably divide marital property and assets acquired while they were married. When marital property includes a qualified retirement account, such as a 401(k) or pension, the family law court may issue a qualified domestic relations order (QDRO) entitling the other spouse to receive a portion of the account owner’s retirement plan assets.
A QDRO allows a retirement account owner to transfer assets to another party without taxation or early withdrawal penalties. But these documents are complex and must meet all the requirements set forth by the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. To ensure that your QDRO is prepared correctly, you should be working with a qualified domestic relations order attorney.
Our skilled Alabama QDRO attorneys at Leigh Daniel Family Law have decades of experience successfully negotiating the division of retirement assets and drafting proposed qualified domestic relations orders for clients. If you are ready to work with an experienced divorce attorney who can answer your questions about QDROs, schedule a confidential legal consultation now.
What Is a QDRO in a Divorce?
A Qualified Domestic Relations Order is a court order issued as part of divorce proceedings to assign rights to retirement benefits to a party other than the account owner. Usually, a QDRO requires payments to the former spouse as marital property or alimony. A QDRO may also order a retirement plan to pay child support. A QDRO may apply to government or private retirement benefits in qualified accounts, including:
- 401(k)s
- 403(b)s
- Profit-sharing plans
- Pension plans
Retirement plans
- Stock ownership plans
- Certain annuities.
QDROs do not apply to IRAs, which are neither qualified accounts nor covered by ERISA. When IRAs are divided in a divorce agreement, early withdrawal penalties may apply. The account owner should file a tax statement to document compliance with federal regulations IRC Section 408(d)(6), which says a transfer related to a divorce is not taxable.
QDROs cannot be used to divide military retirement benefits during the divorce process. Instead, the Defense Finance Accounting Service has established requirements under federal law for the division of military retirement benefits in service members’ divorces.
A QDRO must state:
- The retirement accounts that are to be divided
- The plan participant’s and each alternate payee’s names and last known mailing addresses
- The amount of money or percentage of the account to be paid to the ex-spouse
- When the money is to be paid
- What happens when the participant or alternate payee dies
- What happens when the retirement plan is no longer active
The Role of a QDRO Attorney
An experienced QDRO attorney with Leigh Daniel Family Law can help you negotiate with your spouse and their attorney to reach an agreement on dividing retirement funds. Your attorney will also ensure that the QDRO is written to meet all the federal regulations set forth by ERISA and the Internal Revenue Code.
When preparing a QDRO, it is important that the document’s language reflects the intent of the plan participant, including specifically that a surviving spouse is to receive benefits from the retirement plan and what they are to receive.
For example, there is quite a difference between a QDRO that says a former spouse will receive $200,000 from an account over a certain period of time and saying they will receive 50% of an investment account that continues to grow in value.
Another consideration is whether the QDRO agreement should create a shared interest or a separate interest in the retirement account. A separate interest basically sets up an account for the former spouse that is funded by a portion of the participant’s benefit. Primarily, this allows the alternate payee to receive payments before the participant retires. Depending upon how the QDRO is written, payments to the alternate payee may increase if and when the participant receives increases.
Under a shared interest, the alternate payee receives a share of each payment the plan participant receives, often commencing upon retirement. Some defined contribution plans pay according to a periodic payment structure, so the alternate payee must take a shared interest. Other plans have unusual investment structures that make it difficult to divide the plan’s assets. Another reason to agree to a shared interest is to benefit from the anticipated results of the plan’s investments over the long term.
Having your domestic relations order QDRO prepared by a local attorney with roots in the Huntsville area helps to ensure that your attorney will be available to help you update the domestic relations order if there are changes to the retirement plan or applicable regulations.
If your ex-spouse refuses to agree to a QDRO, your attorney can file a motion asking the court to approve the QDRO.
Drafting Your QDRO in an Alabama Divorce
In most cases, the divorcing spouses and their respective attorneys negotiate the details of domestic relations orders based on each spouse’s retirement plans and inventory of assets submitted at the start of divorce proceedings and each spouse’s demands of the other.
Either attorney may assume primary responsibility for drafting the document and then share the draft QDRO with the other for approval. Alternatively, your mediator may write the QDRO with the two parties’ attorneys’ input if you go through divorce mediation.
Once all parties agree to a draft QDRO, it must be submitted to the retirement plan administrator. The plan administrators often request minor changes that are accommodated without affecting the intent and impact of the order. When these changes have been made, the draft QDRO goes back to plan administrators for pre-approval.
Upon pre-approval by plan administrators, the remaining steps are to:
- Sign the QDRO (by each spouse for a negotiated QDRO or just the spouse requesting it if the divorce and/or QDRO was contested)
- Present the draft domestic relations order to a Family Law Court judge for review and approval
- Obtain a certified copy of the QDRO as issued by the court from the clerk of the court and send it to the plan administrator for distribution of payments. The plan administrators will provide final approval quickly after a QDRO has been filed.
Contact Us About Your QDRO Needs in Raleigh, NC
It’s important to seek trusted legal guidance about financial decisions such as the division of pensions and retirement accounts during a divorce. At Leigh Daniel Family Law, our attorneys want to help you focus on protecting yourself financially during this challenging time. We understand you’ve worked hard to build a life and create a family. As you divide marital assets and negotiate alimony or child support, let an experienced divorce attorney at Leigh Daniel Family Law guide you through the process and work to protect your financial future.
Arrange a confidential consultation with an experienced Alabama QDRO lawyer today.
