Employer plans and QDROs
For ERISA-covered employer retirement plans, a qualified domestic relations order, or QDRO, creates or recognizes an alternate payee's right to plan benefits. A divorce decree alone is not necessarily sufficient. The administrator must determine whether an order is qualified.
Obtain the plan's written procedures, summary plan description and any model language early. Have your attorney coordinate the order and ask the administrator about survivor benefits, valuation dates, fees and distribution options. Government and military plans can follow different rules; do not apply ERISA assumptions to every plan.
Learn more
IRAs use a different mechanism
A transfer of an IRA interest to a spouse or former spouse under a divorce or separate-maintenance decree, or qualifying written instrument incident to it, can be treated as a transfer incident to divorce under federal tax rules. IRS Publication 504 describes this separately from QDRO treatment.
Coordinate a properly documented trustee-to-trustee transfer or change of ownership with the IRA custodian and tax professional. Withdrawing cash and then paying a former spouse is not automatically equivalent to a qualifying IRA transfer.
- Identify each account's actual legal type.
- Confirm whether the administrator requires an order or custodian transfer documents.
- Ask about basis records, taxes and early-distribution rules before withdrawing.
Do not treat all exceptions as portable
Tax and penalty treatment can differ between a distribution from a qualified plan under a QDRO and an IRA distribution after a transfer or rollover. Do not assume a penalty exception carries over to an IRA.
A financial professional does not draft or replace legal orders unless separately authorized and qualified. Your attorney, administrator and tax professional must coordinate their own responsibilities.