If you appreciate money, then yes. You should care.
Not many couples realize that the biggest asset they accrue together is their retirement and pension plans. California is a community property state which means during a dissolution, parties are entitled to an equitable division of assets and debts acquired during the marriage until the agreed upon date of separation.
Why should someone care about money that is invested in some account that is practically locked up until they reach the age of 65 or later? Well, based on California’s community property law, a spouse is entitled for equitable division of said account.
John and Martha have been married for 30 years and they are both currently 50 years old. They both attained great jobs the year they got married and have been equally contributing to their retirement accounts. Martha decided not to work and be a stay-at-home wife, which John agreed to, when they both turned 40. Since then, John has been the sole income for the community. Recently, the marriage has gone awry and they decide to divorce.
What is a QDRO?
A qualified domestic relations order is a special court order that grants a person a right to a portion of the retirement benefits their former spouse earned through an employer-sponsored retirement plan. QDROs are typically prepared during divorce proceedings, though they can be filed post-divorce.
Federal law states that a retirement benefit can only be divided between former spouses if there is a QDRO. This means that a divorce decree issued by a state court may not be enough, even if the divorce decree clearly states that the retirement benefit should be divided.
Why Does Someone Need a QDRO?
If the participant retires after the divorce is final, and no QDRO has been filed with the plan, the plan will begin paying the benefit out to the participant. If a QDRO is issued after payments to the retiree have begun, the plan will honor the QDRO but only future payments will be affected.
We’ve heard from many clients who believe they are entitled to a portion of a former spouse’s retirement benefit because it was addressed in the divorce decree.
Unfortunately, unless the retirement plan has a qualified domestic relations order on file, they have no right to a benefit. Also note that if a divorce decree is finalized but does not address the retirement benefit(s), the former spouse has no rights to the participant’s retirement benefits and cannot use that divorce decree to obtain a QDRO.
After a divorce that does not address the retirement benefit at all, the only way to obtain a QDRO is to undertake the very difficult task of reopening the divorce, which will require a divorce attorney and can take years. For this reason, it is important to make sure that the retirement plan is addressed during your divorce.
How do you start a QDRO?1. Find an attorney to start the process; or
2. Attempt it yourself by notifying the court and the other party then contacting the plan. The following are required for submission:
(a) Plan document and Summary Plan Description;
(b) Participant’s benefit statements;
(c) A copy of the plan’s model QDRO, if it has one; and
(d) A copy of any QDRO that may already be on file for the participant.
Martha feels she is entitled to John’s 10 extra years of retirement benefits while she was not working. She retains a family law attorney and begins the paperwork.