Qualified Domestic Relations Orders, or QDRO for short are generally used to distribute retirement assets between spouses pursuant to a divorce. That four-letter acronym can create a sense of dread for many lawyers- they’re so technical in nature and well, plain boring! They are also a major area for malpractice for family law attorneys. We’ve all had plan administrators kick back QDROs because of some small typo or not following the model language QDRO to a “T.” We get calls from our clients complaining that they still haven’t received the funds and it’s been months since the judge signed the order. We rejoice when we’re able to use the Fidelity QDRO website that pre-populates the QDRO for you after you answer a series of questions.
We usually use these court orders to transfer retirement from one spouse to another, but many might forget they can be used in other scenarios. Pursuant to 29 U.S.C. §1056, a retirement plan can be used to provide child support and alimony payments.
In my practice, I’ve had a couple of occasions to use QDROs for past due child support. One of the main differences in using a QDRO to transfer retirement from one spouse to another is that the plan participant or the obligor of child support has to bear the tax consequences. Make sure the Plan Administrator is VERY clear on this as many times they will try to withhold estimated taxes from the amount that is distributed, even with there being express language in the order providing for this. I typically will point out in the cover letter to the Plan Administrator with the final order that this is a QDRO for child support, not for the transfer of retirement to an alternate payee.
If you’re using a QDRO for alimony, you need to make sure your order is clear that the distributions for alimony payments are taxable income to the payee and should be stated as such. You also need to address the situations presented by the termination or modification of the amount of alimony owed to the payor.
In both child support and alimony QDROs, the costs of collecting the child support or alimony payments should be addressed as well. Don’t forget either to address the payee’s attorney’s fees and interest on the child support or alimony in both scenarios.
Additionally, just because a QDRO has been entered for the distribution of retirement to one spouse doesn’t preclude a subsequent QDRO being entered for child support or alimony.
Whether you should use a QDRO in a child support or alimony setting should be well-thought through. For example, it’s not advisable to use a QDRO if the payor is already receiving payment from his or her retirement plan- a more immediate relief would be to implement wage assignment or garnishment. You also need to assess whether the retirement plan is a defined benefit plan or a defined contribution plan. If you have questions about what type of plan you have, I highly recommend David Clayton Carrad’s book The Complete QDRO Handbook. It was the very first ABA book I purchased and I refer to it frequently.
Emily Moore Tyler is a Raleigh attorney practicing family law exclusively. Emily is a Board Certified Specialist in Family Law and has been recognized as a Rising Star by Superlawyers.com. Visit Emily today at The Law Offices of Emily M. Tyler.
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