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QDRO Process Explained: Click here to find out how to get started.

QDRO

What do I need to know about a QRDO?

The QDRO process can take months to complete making it very important the process is started as soon as possible. Following is a timeline of the process you should expect when filing a Qualified Domestic Relations Order.

Let’s get started.

  1. An attorney experienced in drafting Domestic Relations Orders is identified and engaged by the parties.
  2. The QDRO Specialist drafts the Domestic Relations Order in accordance with specific plan provisions and the agreements reached by parties to the proceedings.
  3. The parties, together with their respective attorneys and financial experts review and approve the draft document.
  4. The Draft Qualified Domestic Relations Order is submitted to the Plan Administrator for pre-approval.
  5. The Plan Administrator responds to the drafter with any necessary revisions.
  6. Requested revisions are made to the QDRO and the revised copy is sent to parties and attorneys for review and signature.
  7. The approved QDRO is signed by both parties and sent to the court for the judge’s signature.
  8. A copy of the singed and court certified Qualified Domestic Relations Order is sent to attorneys or parties.
  9. The certified singed copy of the QDRO must be sent to the Plan Administrator for processing. Some QDRO experts will send the approved document to the plan administrator for the clients. Make sure you know who will take on the responsibility and do not make assumptions.
  10. The Plan Administrator will send a letter to the participant and alternate payee with instructions on how to access the plan and a timeline for completion of the division. It may be necessary for the Alternate Payee to stipulate an outside account for benefits to be rolled to.
  11. The Plan Administrator calculates the division of the plan pursuant to the QDRO and creates a separate account for the Alternate Payee.
  12. The Alternate Payee will receive confirmation that their benefits have been partitioned into a separate account or rolled over into the account previously stipulated.

 

For more information about the Qualified Domestic Relations Order and how it can affect you, visit our article Retirement Accounts & Divorce: Why you need a QDRO.

 

At Wellspring Divorce Advisors, we use state of the art divorce financial planning and forecasting tools for long term projections, retirement plan valuation, support scenario comparisons, and negotiation tools including child support and alimony guidelines. Click here to find out how we can help you.

What is a Qualified Domestic Relations Order?

Retirement plans such as 401(k)’s and defined benefit pension plans are often among the largest assets to be divided during the division of a martial estate. Many of these plans are governed by a set of federal laws known as the Employee Retirement Income Security Act of 1974 or ERISA. ERISA allows an Alternate Payee such as a former spouse to receive a portion of the employee’s benefits with a court order. A Qualified Domestic Relations Order (QDRO) is the court order required to give notice to a retirement plan administrator that an Alternate Payee is entitled to a portion of the plan. Without a QDRO the plan administrator cannot legally make payments to the Alternate Payee.

Who Should Draft My QDRO?

A Qualified Domestic Relations Order should be drafted by an attorney familiar with this subset of legal practice. The drafting of a Qualified Domestic Relations Order is an important step in the divorce financial planning process. Financial planners have specific and far reaching knowledge of retirement plans and the underlying laws that govern them but are ill-equipped for drafting the actual Domestic Relations Orders as they are usually not attorneys.

For a QDRO to be valid and accepted by both the court and the plan administrator it must contain specific requirements under the law as well as be tailored to that specific plan. Retirement plans may even reject court certified orders that were not pre-approved by their own staff. For this reason it is necessary for a draft to be sent to the plan administrator for pre-approval prior to seeking court certification.

Wellspring Divorce Advisors suggests the qualified domestic relations order be drafted and pre-approved prior to finalizing the global financial agreements. We have seen many individuals still fighting to get their share of the retirement plans awarded to them years after settlement because the other party refuses to sign. See more on the QDRO Process here.

Annuities and Your Divorce

Following are excerpts from an article ran in the March 19th 2012 issue of Investment News. It underscores one of the many pitfalls of divorcing without the help of a financial expert. Unexpected penalties, fees, taxes and charges can wreak havoc on a post divorce financial plan.

In this case Divorce Financial Planning could have avoided $100,000 of taxes, penalties and surrender charges.

 

The full text is available here. https://www.investmentnews.com/article/20120318/REG/303189983

 

Breaking up is hard to do – especially with annuities

Attorneys often split contracts in divorce settlements, unaware of the potentially costly impact

When a client came to his office bearing her new divorce decree, adviser Dale Russell became the bearer of bad news. During the divorce proceedings, the couple’s lawyers decided that their chief financial asset, a $500,000 variable annuity inside one of their individual retirement accounts, was to be split among the two. But that Solomon-like decision was made without the attorneys’ awareness of its dire financial consequences.

Splitting the variable annuity meant that Mr. Russell’s client had to pay an 8% surrender charge and a 10% penalty for an early withdrawal from the IRA.

With nearly one in two marriages ending in divorce, financial advisers who deal with divorcing couples often face complex problems connected with untangling annuities that are in the pool of shared assets.

With divorce attorneys typically unaware of the nuances of annuity contracts and the various ways insurers treat contracts in the context of divorce, and with advisers typically out of the loop when settlements are hammered out, the problem lands in the lap of advisers.

“This was essentially the only asset they had, and instead of my client’s getting the $250,000 she expected, she’s getting almost $50,000 less,” he said,

“It’s a big problem, said adviser Lili A. Vasileff, president of Divorce and Money Matters LLC and president of the Association of Divorce Financial Planners Inc. “Most attorneys think these annuities can be divided, and don’t wait for the consequences.”

Couples who work out divorce agreements on their own are even less likely to consider the financial consequences of splitting an annuity, and typically face surrender charges and loss of accrued living or death benefits due to excess withdrawals.

What makes annuities peculiar is the fact that they usually are not liquid in the immediate term, and each contract has its own rules on how it can be divided.

Contract Terms

Contract terms vary wildly among insurers, with some prohibiting partial tax-free exchanges into other annuities, which potentially could be a way to apportion an annuity in a divorce. Exchanges into a new annuity, however, generally involve the beginning of a new surrender period.

Ideally, an adviser would intercede early in the split, analyze the shared pool of assets and communicate with life insurers about the annuities. This would also entail ensuring that if an annuity split involved a partial Section 1035 exchange, the division would be performed without the risk of taxes.

It pays to be attentive to these details, advisers said, as insurers adhere strictly to the terms of the divorce decree.

“If the court says the contract needs to be split a certain way, we have our hands tied,” said Brian L. Kunkel, national director of advanced planning and solutions at Prudential Financial Inc.

“If the client calls us, we can outline the options available to comply with the court agreement and still be as contract-friendly as possible,” he said. “If people just process the agreement, then we merely follow the instructions.”

In most cases, a divorce decree absolves the attorneys involved from responsibility for any financial consequences.

 

Working With Attorneys in Mediation

mediation, CDFA

In an article from HuffPost, they offer great tips on how to choose a “Mediation Friendly” lawyer. But here are more tips on how to effectively find the right team to help you with your divorce.

 

Ask your mediator for referrals to attorneys they know, respect and have worked with.

The consulting attorney you hire will be the only source of advice regarding your rights and obligations under the law. You need this advice so do not choose the least expensive person you can find. They may even be asked to draft legal documents such as Marital Settlement Agreement or Qualified Domestic Relations Order. Remember, No matter what method you choose to divorce, it is a legal process and legal advice is necessary.

Consider also having a financial advisor help you understand the short and long-term ramifications of settlement options.

Divorce is the largest financial transaction that many people will experience and you will live with the results of your decisions for the rest of your life. Make sure they are made with all of the financial information at your fingertips and expert advice from someone experienced in the financial intricacies of divorce. Google Divorce Financial Planning and look for a professional with Certified Financial Planner and Certified Divorce Financial Analyst credentials.

A financial planner experienced in divorce financial planning will help you gather the necessary data, level the playing field in financial knowledge when one party has not been involved in the family management and even help you brainstorm settlement options to take back to mediation.

 

wellspring divorce advisors

 

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.