Division of Retirement Benefits in Divorce: The How, Why and When of QDROs

By: Donna M. Cheswick
: October 31, 2016

Pension and retirement benefits earned during a couple’s marriage are of great value. It’s not uncommon for divorcing couples that have been married for a long time to build up significant marital property tied up in defined benefit (pension) or defined contribution 401(k) plans.

The Employee Retirement Income Securities Act of 1974 (ERISA) was enacted to protect the interests of participants in employer-sponsored retirement plans. In order to be able to assign all or a portion of an ERISA plan to an ex-spouse with no tax consequence, a Qualified Domestic Relations Order (QDRO) must be prepared to satisfy certain federal and state requirements. However, be advised, not every employer plan falls under ERISA governance (such as federal and state plans), and in fact, some plans exist that are not divisible at all.   

A QDRO, pronounced QUAD-row or CUE-dro, is a legal order that needs to be included in a divorce agreement and allows a divorced spouse to receive all or a portion of a qualified retirement plan from their ex-spouse. The employee whose interest is being transferred is known as the “participant” and the individual to whom the interest is being transferred is known as the “alternate payee.”

A court must formally issue and approve a property settlement agreement before it can become a domestic relations order under ERISA. The mere fact that an agreement is agreed to and signed by the parties will not cause it to be a domestic relations order. The order becomes “qualified” when it is reviewed and approved by the employer’s plan administrator. Until this happens it is just an order and can’t be legally enforced.

Because no two retirement plans are identical, determining specific entitlements under a Plan is critical, so as soon as employer retirement plan assets are identified during the divorce process, four items should be obtained: 

1. A current employee benefit statement

For defined contribution plans, this will show the current value of the plan, if the participant is vested; if there are any after-tax benefits; if the plan is a Traditional or Roth 401(k); and whether there are any outstanding loans. For defined benefit plans, this will show the total benefits earned, the vested accrued benefit or the earliest date the benefit will be come vested, and an explanation if other payments will be subtracted when benefits are calculated.

2. A copy of the Summary Plan Description

3. A copy of the Plan’s written divorce procedures

4. A draft/model of the Plan’s QDRO


These documents will show the exact Plan type and whether the Plan has any unique division issues, like whether or not the plan offers survivor benefits, if the plan terminates upon the participant employee’s death, when plan benefits can be accessed, or if some/all of the assets are unable to be divided.   

A QDRO cannot compel a plan to provide benefits not provided under the plan. If the proposed division violates any of the technical plan provisions, it may not be honored. It is recommended to involve a Certified Divorce Financial Analyst (CDFA) or a QDRO professional during the divorce process, because these individuals typically have the specific knowledge needed to assist with the financial complexities of these types of plans. They can help determine the specific benefit information and correct valuation of any retirement assets. This should be done during the negotiation process so that assets are not overlooked and valuable pension benefits are not lost.

If specific details are not discovered until after the settlement agreement has been signed by the parties, it could cause amendments, re-filings, and re-approvals. Not only is this a waste of valuable time and additional processing and legal fees, but the delay could result in a loss of benefits to the non-employee spouse. QDROs are complex legal documents; therefore, it is vital that they be properly drafted to protect the rights of both parties.

Because there are so many important issues to consider, it is essential to work with an attorney and a CDFA or other professional who is skilled in properly preparing these documents. The smallest mistakes in language could cost thousands of dollars in lost benefit payments.

It is best to have the QDRO prepared simultaneously with the divorce or as soon as possible after the divorce is finalized, because many plan administrators may take a considerable amount of time to review a draft QDRO. Also, processing by the courts may take time. If you are the alternate payee, your benefits are not protected until a signed court order has been approved and processed by the plan administrator.