What You Need to Know About Qualified Domestic Relations in California
In the case of a divorce, both spouses are entitled to retirement benefits. Here’s everything you need to know about Qualified Domestic Relations Orders in California.
Particular retirement plans cannot be divided without a Qualified Domestic Relations Order (QDRO). Thus, having a plan like a QDRO can be very useful in ensuring both spouses are satisfied with their retirement plan benefits following a divorce.
What are Qualified Domestic Relations Orders?
A QDRO, or Qualified Domestic Relations Order, is a court order issued during a divorce that specifically works to divide retirement plan benefits. QDROs are typically supplied alongside MSAs, or marital settlement agreements, which are contracts that finalize a divorce. A QDRO provides concrete information to a retirement plan administrator about the division of retirement plan benefits. These orders must be comprehensive, as a party might be unable to receive certain assets if the order does not strictly state their rights.
Related: How to Keep Your Pension in a California Divorce
Why do Qualified Domestic Relations Orders exist?
A QDRO is necessary for a retirement plan administrator to be able to provide benefits to qualified spouses. In divorce, the spouse that obtains retirement benefits from his or her work is known as the “participant”, whereas the other spouse is known as the “alternate payee”. Certain laws do not allow particular retirement plans (listed below) to pay benefits to anybody aside from the participant. Thus, QDROs exist to help support the alternate payee.
What kinds of retirement plans require a Qualified Domestic Relations Order?
In California, not all retirement plans require a QDRO. Plans that do not require a QDRO include:
- Individual Retirement Accounts (IRAs)
- Government retirement plans (i.e. city, county, state, federal retirement plans, and military pensions)
- Deferred annuities
Related: How to Calculate Pension Value in a California Divorce
Plans that do require a QDRO include:
- Tax-sheltered annuities
- Profit-sharing plans
- 401(k), 403(b), 457 plans
- Thrift plans
- business/corporate defined benefit/pension plans
- Employee stock ownership plans
- Money purchase plans
How do alternative plans compare to QDROs?
Not all retirement plans require a QDRO. In fact, there are certain actions spouses can take that do not involve a plan at all. For example, spouses can engage in a “buy-out” agreement. This sort of agreement entails the “participant” spouse, or working spouse, keeping their retirement plan and paying the other spouse the value of his or her interest in the plan. A buy-out agreement must be agreed upon by both spouses and confirmed in a marital settlement agreement.
When a spouse chooses to take part in a buy-out agreement, it is important to know the up-to-date value of the plan as well as the community portion owed to each party. For certain plans, this information can be obtained through account statements or by communicating with a retirement plan administrator. Furthermore, it is important to consider the possibility of tax consequences, as accounting for future taxes regarding benefits can assist in making sure the buy-out agreement works in one’s best interest.
Contact Us
If you or a loved one have any more questions about Qualified Domestic Relations Orders (QDROs) in California, contact us. Get your free consultation with one of our California Property Division Attorneys today!