The Process of Preparing and Completing a QDRO
According to Arizona State Community Property laws, for divorces or legal separations in which the parties have one or more retirement accounts, those accounts will need to be divided between the parties.
If you were contributing to a retirement account before your marriage, anything earned up to the date of marriage is considered your sole and separate property; likewise, any contributions or service time accrued after the date of service is also considered your sole and separate property.
How Retirement Benefits are Divided in a Divorce: Arizona Community Property Laws
The process for dividing retirement benefits or assets involves preparing a Qualified Domestic Relations Order (“QDRO”), or a like order. A QDRO is a court directive (order) to the plan administrator of the retirement asset or benefit that defines how the parties’ retirement accounts will be divided and how they will be allocated to the non-employee party after a divorce or separation.
One QDRO will be required for each retirement account to be divided.
How QDROs are Prepared:
Step 1: Determine How the QDRO will be Prepared
During or before a Decree has been entered wherein one or both parties have retirement accounts, the parties and their counsel may determine how the retirement assets will be divided and the applicable QDROs will be prepared.
There are many considerations that will need to be made, including the following:
- What types of accounts do each of the parties hold, and how many? As such, how many QDROs will need to be prepared?
Each retirement plan or account will need its own QDRO. If the parties will agree to a form of offsetting or equalization of their retirement plans, they may be able to limit the number of QDROs required. - Does one or more of the retirement accounts in question have a sole and separate portion or has the community interest in these “mixed” accounts been calculated?
If the parties have not agreed on a calculation, then this will need to be done as part of the process.
Learn more about the difference between Community Property and Sole and Separate Property
- Will the QDRO will include a survivor benefit?
Under these circumstances the QDRO would include a provision granting the non-employee spouse claim to their portion of the employee spouse’s benefits should the employee die before the other spouse or before retirement. Typically, this entails a deduction in the amount of a monthly payment or amount paid – who is responsible for the payment or reduction corresponding to a survivor benefit?
- Will the QDRO be subject to gains or losses?
If the account has lost or gained interested due to changes in the stock market, will those be included in the allocation of funds to the non-employee spouse? If so, for which time periods will the gains and losses be applicable to the calculations in the QDRO?
- How will the funds be allocated to the non-employee spouse?
The allocation of funds to the non-employee spouse can also take many forms, such as by an agreed-upon percentage of the retirement funds or an agreed-upon lump sum. It is important to note that the funds received by a non-employee spouse from their ex-spouse’s retirement fund must be transferred into a different tax deferred account such as an IRA. Taking such funds as a cash disbursement may not be possible under the terms of the applicable retirement plan AND may be a reason for rejection of a QDRO by the plan administrator, and even if it is allowed, it may cause significant tax consequences and penalties for the non-employee spouse.
These determinations can either be made by agreement between the parties or by court order, either in the Decree or in subsequent orders. If the parties are able to come to a mutual agreement on these issues during the divorce, before a decree has been signed and entered with the court, they will save significant time and money. Those agreements can then be outlined in the divorce decree, which, once ordered, will mean less work and fees for your QDRO preparer.
If the parties are unable to come to agreements on these issues before the Decree and the division of retirement accounts and the QDRO preparation, then the QDRO attorney will need to address those issues with the parties and either get the agreement of the parties or seek Court intervention; either way will likely lengthen the time needed to prepare the QDRO(s) and will cost the parties more for the preparation of the same.
Step 2: A QDRO Preparer will Draft the QDRO
In the preparation of a QDRO (or other like order), calculations will be made as to the community portion of a specified retirement account and how it will be divided between the parties. These calculations are complex and are best completed by an experienced QDRO attorney.
Ultimately, the retirement plan administrator has to approve the QDRO, ensuring that it meets all the requirements under the plan and federal law, and then enforce and apply the division or payments from that retirement asset or benefit as set forth in QDRO. Therefore, it is crucial that the QDRO be in the proper form and have all the required elements so it can be approved by the plan administrator and the monies from these retirement assets disbursed appropriately as outlined in the order.
After going through an entire divorce, the parties are typically emotionally raw, exhausted, and ready to be done. Although the QDRO process typically takes place near the end of the road, it’s important to remain vigilant and ensure your QDRO is properly drafted as these retirement benefits can make up a substantial portion of the parties’ assets.
One excellent way to ensure your QDRO is going to be accepted and is implementable is by choosing an attorney with necessary experience and education to properly calculate, prepare and implement the QDRO.
Scottsdale QDRO Attorney
Here at Owens & Perkins, one of our attorneys, Max Hanson, not only has 25 years of experience as a family law attorney and working with the division of retirement assets, but has received additional extensive and specialized education in the calculation, preparation and implementation of QDROs, COAPs, and other like orders through the American Association of Certified QDRO Preparers and has been certified by this entity as a Certified QDRO Specialist (“CQS”)[1].
As a CQS, Mr. Hanson has completed significant coursework and passed proctored exams in connection with the same that have qualified him for making the complex, difficult calculations and determinations that are requisite for QDRO preparation.
Biography of Max N. Hanson, Esq.
Step 3: The QDRO is Filed with the Court
Once prepared, a QDRO is filed with the court and entered as an order by the judge. Once the order is in place, it is sent to the Plan Administrator of the employee spouse’s plan or benefits for the purpose of executing the QDRO.
Step 4: The QDRO is sent to the Plan Administrator
Once they have received the QDRO, the Plan Administrator will determine whether the QDRO meets the requirements of the particular plan it was prepared for. If it does not, the QDRO may be rejected and the parties will be required to go through the preparation process again to address the relevant issues.
Many administrators, although not all, are willing to pre-approve a QDRO after it is agreed upon by the parties and before it is filed with the court. Pre-approval can save significant time and resources and may help prevent a QDRO from being rejected in the post-court-order stage.
Step 4: The QDRO is Approved, Implemented, and Executed by the Plan Administrator
When the QDRO is accepted by the Administrator, they will implement the division of the retirement account according to the payment instructions within the order and the requirements of retirement plan.
Get Started on Your QDRO Today
Are you going through a Divorce or Legal Separation of your own, and you and/or your spouse have retirement accounts to be divided? The process of preparing and implementing a QDRO, while important and complex, can be made simple if you have a highly-experienced, knowledgeable QDRO attorney by your side.
Max N. Hanson, Esq. has completed significant coursework and passed proctored exams that have qualified him for making those complex, difficult calculations and determinations requisite for QDRO preparation. His 25-year career as a family law attorney and his aforementioned qualifications make him an excellent choice as a QDRO preparer.
Biography of Max N. Hanson, Esq.
Contact Us for a FREE, 30-minute Consultation
Whether you need full representation for your divorce or separation, or just need assistance with drafting a QDRO, our attorneys at Owens & Perkins have the experience, skill, and tenacity to help you resolve your case. Call us today at 480.994.8824.
[1] The American Association of Certified QDRO Professionals and certification herein are not an organization accredited by or recognized as an official board certification or specialty by the Arizona State Bar or its Board of Legal Specialization.
