QDRO, What? Is That a Four Letter Word?

In response to a request from a reader below our column , this column is about that dirty little term, known as a QDRO.

QDRO is short for a Qualified Domestic Relations Order.

Let me set the stage: You are in a “dissolution of marriage” action, commonly known as a divorce, and you are entitled to a share of your spouse’s retirement account.  You receive a final judgment dissolving your marriage and mail it to the former spouse’s company asking for your money. Your spouse’s employer says, “Nope, you are not entitled to your money until you comply with our rules!”

WHAT?  A judge entered a court order saying this was your money, and this company thinks it has the right to ignore the judge? The company can establish its own rules?

Impossible? Absolutely not.

This may seem like an isolated issue applicable only to a select few of the community. However, consider the following:  there were more than 87,000 divorces filed in Florida alone in 2010, according to the Florida Office of State Court Administrator.

If your friend, neighbor or loved one is in a divorce, ask them, “How is your QDRO going?” Then ask them to read this article. It may decrease the time it takes for this person to receive his or her money by many months.

In a significant number of divorces, one spouse is entitled to a percentage of the other spouse’s retirement funds. The problem is: how do you then get your money? This article is not going to discuss the tax consequences regarding any of these issues as that is solely within the realm of tax attorneys and tax professionals. My goal is to empower you to ask the right questions and provide you the resources to get your money. You will have to talk to your accountant or financial adviser about what to do with money.

First and foremost, a private company or public entity is allowed to set its own rules on how to distribute retirement funds. This includes 401(k) accounts, pensions, annuities, and so forth. Typically the “rules” are set by the company who manages the accounts. For my business, Wells Fargo Financial Advisors sets the rules.  

When the company sets the rules, this means that the company can require that the QDRO, that is, the court order that mandates the release of the funds, must meet the company’s specific requirements. If you get a QDRO that does not conform to the company’s specific requirements, the company can reject the QDRO. Then you have to try to get a new one.  

QDRO’s are so specific that it is one of the few forms that family law attorneys do not “borrow” from the standard Florida Supreme Court Family Law Forms.  More importantly, if you try to do a divorce on your own, you will not find the form either.

Here are some other dirty little secrets that require your attention. First, your family law attorney may specifically exclude the drafting of a QDRO in your retainer.  Second, even if the attorney does not exclude the drafting of a QDRO, he or she may not know how to draft it. Third, virtually every QDRO is different.  

When I was faced with my first QDRO several years ago, it was a nightmare. It literally took me three months after the divorce was final to get the QDRO approved and entered. I have since learned my lesson. Here are a few pieces of advice if you are doing your own divorce—or even if you have an attorney—and you think you may be entitled to funds from a former spouse’s retirement account:

1. Submit your proposed QDRO to the company early in the case. The company or manager of the account can and usually will pre-approve a QDRO prior to entry.  This means that you can submit a proposed QDRO early on in the divorce proceeding if there is any chance you may receive retirement funds. This way, when you finish your case and you have a final judgment ending your marriage, you can submit the QDRO at the same time and you know the company will take it.

2. Do not submit your QDRO to the judge until it is pre-approved. You can roll the dice, but we attorneys charge a lot per hour and there is no need to spend extra money when you can get pre-approval.

3. Find the department or person that pre-approves the QDRO’s and make a personal connection. This will help expedite the process. For larger companies, reviewing a QDRO can take weeks or months.

4. There are attorneys that specialize in drafting QDRO’s for a price. A lot of  family law attorneys “farm” out their QDRO’s to these specialists and mark up the cost. Finding a QDRO specialist is a good idea if you are doing your own divorce, but not very efficient if you already paying your own attorney.

5. Better yet, there are specific websites that assist parties and attorneys in drafting QDRO’s. The website I use for larger companies charges $300.00 for the QDRO and guarantees the QDRO will meet the company’s rules. This is a small investment to make sure the QDRO is done right.

6. Despite the guarantees by the websites, refer back to step one: get your QDRO pre-approved early on in the divorce proceeding.  

7. A QDRO is for the company that manages the money. You should (read: must) still identify in your final judgment dissolving your marriage that you are entitled to the money and entitled to a QDRO.

8. Finally, it is your money and therefore your burden. Do not expect the paying party spouse to get the QDRO done. Take the initiative yourself to get your money.  

If done correctly, the entry of a QDRO is an easy task and can be finalized timely if you plan ahead. If not done correctly, a QDRO is a nightmare. Ask your attorney the right questions, and get started early.