In divorce proceedings, it sometimes happens that one of the primary assets of the divorcing couple is one person’s pension plan earned through their employment. When splitting such a pension plan, the court will enter a Qualified Domestic Relations Order (or QDRO). A QDRO is a court order that allows someone other than the plan participant (the person who earned the pension) to receive payments under the pension plan. That person is known as an “alternate payee” and can be the participant’s spouse, former spouse, child, or other dependent.
A QDRO is only necessary in splitting a plan subject to ERISA (the Employee Retirement Income Security Act) (which would include most 401(k) plans. So a QDRO is not necessary when splitting an IRA or a deferred compensation plan. (However, other sorts of orders may be necessary in those situations, they just aren’t technically QDROs.) You might hear someone refer to a document splitting an IRA or other non-ERISA plan as a QDRO, but technically this isn’t accurate.
Drafting QDROs can be a challenge because there are a number of requirements, which differ depending on the type of ERISA plan in question. For example, dividing a retirement benefit varies in a defined contribution plan compared to a defined benefit plan. And the plan’s survivor benefits must also be considered, including whether those benefits are to be transferred to the ex-spouse, whether a subsequent new spouse will gain those benefits, or some combination thereof.