Federal law protects your retirement plan.  The law generally keeps creditors away from it. (See Section 206(d) of ERISA).  But, especially in cases of divorce, a divorcing couple may need to divide a retirement fund.  So, there is an exception.  A 1984 law, called the Retirement Equity Act makes it possible for assignment of retirement benefits to a spouse, ex-spouse, child or dependent.  The tool used to make such an assignments called a Qualified Domestic Relations Order or "QDRO" for short. 

A QDRO is a court order issued by the Family, or Domestic Relations court that recognizes the right of someone other than the worker, who contributed to the retirement fund, to receive all or part of the vested interest in a tax-qualified retirement plan.  QDRO's require approval of the administrator of the retirement plan.

The plan administrator must base its approval upon the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code and the plan's guidelines.  Since each plan has its own guidelines, QDRO's can vary as much as each plan.

So, even an order that complied with ERISA and with the tax code, may not comply with the plan's guidelines.  Unless a court order meets all these requirements, the plan administrator may reject it as "non-qualified", and be unable to accomplish what the order says without revising the order.

A plan administrator has 60 days to determine whether or not they consider your QDRO to qualify under their plan.  If the plan administrator decides your QDRO does not meet the terms of their plan, they inform you. IN that case, you have the opportunity to change the QDRO so the administrator of the plan can enforce the order to divide the retirement account into separate accounts.

Once separated, the separate owner of each account may give hte plan administrator his own directions of what to do with his separate account.  These directions may include "rollover" instructions, or an option to cash out all, or some of the account, in which case, the owners (sometimes referred to as "participant") may have to pay taxes or penalties.  A new owner, who takes ownership through a QDRO may have a grace period to cash out without paying tax penalties.  Consult a qualified tax adviser.

Because of the complexity of this process we recommend professional help, which includes a licensed attorney, working in close communication with the retirement plan administrator and access to a tax adviser.

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PHONE: 859-746-0500