[author: Noreen Bratton]
You were just divorced from your spouse and a provision of your Marital Settlement Agreement incorporated into your Final Judgment of Divorce reflects that you agreed to divide specific retirement accounts belonging to you and your spouse. Clients have posed the question: “Don’t I just send a copy of my Final Judgment of Divorce to my employer or the retirement account Plan Administrator to take care of this?” That sounds like it makes sense. Unfortunately, dividing retirement accounts due to a divorce is much more complicated than that and customarily requires retaining an individual who specializes in this process, such as a pension actuary or qualified accountant. The process from start to finish can also take a considerable amount of time.
Defined Benefit Plans, which are provided through an individual’s employer in the private sector (such as a pension), promise a specified monthly benefit at retirement, customarily as an exact dollar amount per month. Defined Contribution Plans, which are also provided through an individual’s employer in the private sector, can include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans. Both Defined Benefit Plans and Defined Contribution Plans provided through an individual’s employer in the private sector are governed by the Employee Retirement Income Security Act of 1974 (ERISA), which is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. These two types of retirement plans require the implementation of a Qualified Domestic Relations Order (“QDRO”) in order to divide the retirement plan in a divorce action. A QDRO is a document independent of your certified Final Judgment of Divorce and only includes provisions relating to the division of the retirement account. Each retirement account requires a separate QDRO.
How do I get a QDRO?
Once a pension actuary or qualified accountant prepares the initial draft of the QDRO, it is then submitted to the Plan Administrator for pre-approval. The drafting and pre-approval process can take approximately four to twelve weeks. Once the draft of the QDRO has been pre-approved by the Plan Administrator and counsel for the parties agree that all information is correct and consistent with the terms of the Final Judgment of Divorce, the QDRO is then submitted to the Court to be signed by the Judge assigned to the parties’ divorce action and filed with the Court. The Court will return to counsel the certified QDRO bearing a gold seal, which is required by all Plan Administrators.
New Jersey Courts charge $25.00 for each certified QDRO. Awaiting return of the certified QDRO from the New Jersey Court takes approximately ten to fourteen days. Thereafter, the certified QDRO is submitted to the Plan Administrator for final approval and processing. In accordance with the ERISA §§ 206(d)(3)(H), 404(a); IRC § 414(p)(7), a Plan Administrator is permitted a “reasonable” time period to process the QDRO, which can take anywhere from a few months up to eighteen (18) months to issue final approval and processing of the QDRO. That time frame is out of the control of your attorney and the Court, however, QDROs are normally approved within a couple of months. Thereafter, the Plan Administrator will communicate directly with the Plan Participant (employee of Plan) and Alternate Payee (spouse of employee of plan) in order to finalize any additional required documentation to finalize the process.
As you can see, your attorney will continue to stay involved throughout the QDRO process communicating with the pension actuary or qualified account, your former spouse’s attorney, the Court and the Plan Administrator.
As for military and/or government retirement plans, there is a similar process but they involve much more specified steps to take with such governmental entities that are even more complicated. It is highly recommended that you consult with legal counsel to assist with these plans.
With regard to private Individual Retirement Accounts (“IRA”), whether they are Rollover or Roth IRAs, many financial institutions do not require the submission of a QDRO, but rather completion of a simple rollover form will accomplish the division of the IRA. This specifically is determined by each financial institution. A simple phone call or visit to their website can generate the necessary rollover forms needed to divide the IRA.
Considering that dividing a retirement account in a divorce action is such a complicated matter, it is imperative to have your attorney communicate on your behalf with a qualified accountant or pension actuary who specializes in dividing retirement accounts in a divorce action.