Oregon Divorce & Qualified Domestic Relations Orders (QDROs)

What is a QDRO and how does it work?

“QDRO” stands for Qualified Domestic Relations Order (Annuity). When a marriage dissolves, commonly known as a divorce, a QDRO will divide retirement benefits between the separating individuals. Basically, a QDRO is a legal process in a divorce proceeding that operates to ensure retirement benefits are fairly divided.

In a typical divorce proceeding, one party initiates the legal documents, or files a petition of divorce, with the court. This legal action eventually triggers an accounting of all relevant assets available for distribution between the parties because they were earned during the marriage. Some states include assets before the marriage as relevant for divorce accounting.

In typical divorce proceedings, retirement benefits are not automatically subject to the relevant asset accounting. A QDRO allows retirement benefits to be distributed to a former spouse. Once a former spouse secures a QDRO, the annuity or retirement provider can distribute funds from the retirement account that former spouse. Without the QDRO, a former spouse cannot receive any distribution of retirement funds.

QDROs are required to provide certain information pertaining to the plan owner and the intended recipient. This information includes:

The period of time distributions will occur or specific number regular distributions
The current names and mailing addresses of the recipients
The name of the retirement plan provider
The percentage or amount of money to be issued to each recipient

Divorced couple fighting over retirement benefits such as a 401(k) savings plan.

What Is the Purpose of a QDRO?

Because a marriage is a union, the goal of a QDRO is to provide each party fair benefits for contribution or investment to the marriage. During a marriage, individuals may sacrifice their time in ways that would negatively influence their financial security had they not entered the union. Such influences are not taking certain career opportunities, forgoing property interests, choosing not to take on personal goals or, to share the obligations and duties of raising a family. The law believes that these investments and contributions to the marriage union are entitled to certain benefits should the union end.

Because a retirement account is a financial investment made over the course of a person’s or a couple’s lives, the QDRO essentially serves to transfer the time investment in the marriage for the financial benefits earned for retirement. A QDRO also serves to protect assets or distribute funds

Because a QDRO ensures compliance with State and Federal law as well as protection for the parties, in terms of fair distribution of funds for each parties investment to the union, it is commonly viewed as a beneficial measure. Without a QDRO, claims to retirement benefits could unfairly distribute annuity to one party or another regardless of the time contribution or investment into the marriage union.

What is required in a QDRO?

Because a QDRO is a legal instrument tied to the proceedings in a dissolution action, to secure a QDRO starts with the filing of a divorce action. But the court proceeding is not the only approval required. A QDRO becomes finalized once the legal proceeding is completed, an order is sent to the retirement or annuity provider, and the provider makes the necessary changes to the holdings account.

Is a QDRO necessary to divide a 401k?

Yes, a QDRO is necessary to divide a 401K between spouses who are going through a divorce since only one individual actually owns the account. Even if the other former partner is a named beneficiary, a QDRO is required to split the money since a beneficiary does not own the retirement account. in the account. The named individual on the retirement account will require a QDRO from the court. Only a judge can grant a QDRO, so, if a former spouse wants to enforce the retirement provider to distribute funds, they must secure a QDRO first.

How Do I Split My 401k in an Oregon Divorce?

How money is split in a divorce varies from state to state. The complexities of family law litigation, which include dissolution of a marriage, can draw out and muddle financial distribution issues. The Court weighs financial and asset distribution for fairness to both parties for their time and investment to the union. And, the Court is bound by state law.

Some state laws require a 50-50 split, regardless if the assets were acquired before or after marriage. And still, other state laws measure the contributions made by each individual during the marriage without any consideration to what funds or assets each individual held separately before marriage. So, parties to a divorce should not rely on a simply 50-50 split and, instead, should consult a lawyer about how the laws of their state will treat assets.

How a court determines the proportion to divide assets incudes consideration of assets held before marriage, earned during marriage, property held before or after the divorce, and retirement benefits. Other factors the court considers are:

Length of the marriage
Investments made during the marriage
Each spouse’s individual financial situation
The ability for each spouse to earn income

How is a QDRO paid out?

The ex-spouse typically initiates the QDRO process and can do so without the aid of a lawyer. Retirement plans themselves also have QDRO paperwork available to start the process.

Part of the QDRO approval is the distribution type. There are different distribution types available such as:

Rolling over or transferring retirement funds to another retirement account
A one-time, lump sum payment
Installment payments

Whichever the distribution type desired, an approved QDRO from the court must include how the QDRO is scheduled to be paid out.

Once the QDRO is approved, when the money will be received can vary widely. Generally, the process, from start to finish, can take under a year even as quickly as two to three months. However, keep in mind that when the funds are distributed is dictated by the final QDRO order. So, if an ex-spouse has a specific time or date in mind to receive funds, it is best to speak with a lawyer about how soon funds can be received.

Who pays the taxes on a QDRO distribution?

Generally, early withdrawals or distributions from a 401K are subject to tax penalties. QDROs are helpful to the extent that the owner of the retirement account does not have to pay taxes on distributions of funds ordered by the QDRO. Once a distribution is made to a former spouse, they are responsible for any taxes due on the money received.

Different types of retirement accounts may be treated differently and may require a different legal process. For instance, other types of retirement accounts such as pensions or employer plans. For pensions, however, how much a former spouse can receive varies from state to state. It is best to consult with an attorney to learn about how and when a QDRO is necessary or when it may require different parameters.

For these accounts, a former spouse will have to get a different order or decree, specific to each type of account. Keep in mind however that Individual Retirement Accounts (IRA) require even a different type of order or decree not a QDRO. To distribute assets of an IRA, the parties must initiate a “transfer incident to divorce” (TID). A TID is a separate legal process than a 401K, IRA, pensions, or employer-sponsored accounts for accurate compliance and fair distribution of funds.

Who Drafts QDROs In Oregon?

QDROs are a specialty, a niche area of law that most divorce lawyers do not handle. Below is a list of some of the attorneys in Oregon who draft QDROs:

Stacey D. Smith – Eugene
541-504-6985
Stacey@staceysmithlaw.com

Deborah R. Lush – Salem
503-585-4422
deb@heltzel.com

Clark B. Williams – Salem
503-585-4422
clark@heltzel.com

Greg R. Roberson – Hillsboro
Resolute Law
503-841-3010
greg@resolutelawyer.com

Jan L Atwill – Portland
503-224-1142
jan@janatwill.com

Pamela D. Quinlan – Portland
503-546-5593
qdroqueen@gmail.com

Christopher J. Eggert – Salem
503-837-6111
chriseggert@eggertattorney.com

SOURCES