Spouses separating in Minnesota should understand the role of a QDRO during divorce and the various requirements that these legal orders must meet.
When dividing assets during divorce, many spouses in Minneapolis may assume that the final divorce decree will adequately provide for the disposition of all marital property. However, individuals who possess complex marital assets may also need to obtain a special legal order known as a "qualified domestic relations order." It's crucial for these spouses to understand what a QDRO is and what requirements it must meet to be legally valid.
Role during divorce
Per the Internal Revenue Service, a QDRO directs a retirement plan to pay benefits to someone other than the participant. In Minnesota, since retirement benefits that accrue during marriage are the property of both spouses, QDROs are often used to redirect marital property to the non-participant spouse. However, a QDRO may also be used to make child support or spousal maintenance payments to the participant's dependents.
Some retirement benefits, including IRA and SEP accounts, can be divided without a QDRO, according to Forbes. However, pension and 401(k) plans can only be divided through a QDRO. If a divorce decree provides for the division of these plans, but there is no QDRO to formally support the decree, the non-participant spouse may lose out on his or her share of the benefits.
A QDRO is only valid if it contains specific information about the participant and the other person who will receive payments from the plan. According to the Department of Labor, the order must include the name of the plan, the name of both individuals and the most recent mailing address of both parties. The plan must also specify the amount and duration of payments that will be made to the non-participant.
Divorcing spouses should understand that various issues have the potential to render a QDRO invalid. The DOL explains that a QDRO must not do any of the following things:
- Contradict the terms of an earlier QDRO that applies to the same plan
- Award benefits that exceed the value of the benefits available under the plan
- Order the plan to provide the non-participant with benefits or options that are not available under the plan
As an example, Forbes cites a hypothetical case in which a QDRO orders the pension plan to pay the non-participant spouse an immediate lump sum. This is not an option under most pension plans, and consequently, the QDRO could be rejected. To avoid this type of outcome, Forbes recommends that a QDRO be submitted to the pension plan before the divorce decree is finalized. Then, if the order is rejected, spouses can adjust the QDRO or the proposed divorce settlement accordingly.
Handling complex property issues
The unique legal issues that qualified domestic relations orders can introduce help underscore the complicated nature of asset division during divorce. To reduce the risk of harmful missteps or oversights during this process, spouses should consider seeking the advice of an attorney with experience in complex property division. A divorce attorney may be able to help a person ensure that all available assets are taken into account and divided in a legally enforceable manner.