Big Week for QDROs in the National Headlines

Forbes Magazine Recognizes the Power of QDROs

As if it wasn’t enough to see QDROs in the national headlines once this week (or even month, year, decade...), how about twice?  (See my blog entry from earlier today, below; QDROs appear in celebrity news reported in both US Weekly and E! Online).  Once again, I must credit my friend Erin for her incredible QDRO-media-prowess in finding this article.

Forbes – How to get your ex-husband to honor the financial terms of your divorce settlement 

This article is a great reminder of the remarkably powerful tool that a QDRO can be, even in the middle of a case.  It examines opportunities to use QDROs for purposes other than the mere division of marital property.  After reading this article, attorneys practicing domestic relations law may want to reassess the way that they use QDROs in divorce.   

For starters, use the QDRO to the client’s advantage:  think outside the box and understand the power of a QDRO.   A QDRO is a highly efficient judicial enforcement device for several reasons.  First, a plan participant’s cooperation is not an issue; once ordered by the court, payment is made directly to the alternate payee from the retirement plan itself.  Second, payment directly from the plan severs the parties’ economic ties (this could be paramount in the midst of a contentious divorce).  Finally, many plans will ‘freeze’ a participant’s account in advance of the actual qualification of the QDRO, meaning the participant will be restricted from cashing out or taking loans against the account.

When assessing the client’s case, think about QDROs as a creative mechanism for payment of:

• Child Support – A QDRO can be used to retrieve all or a portion of child support arrearages from retirement assets. Does the delinquent payor live out of state? If so, for most qualified plans this is irrelevant; there’s no fear of cumbersome out-of-state collection efforts. Also, QDROs can be used creatively to pay current, or even future support.

• Maintenance – Just like child support, maintenance can also be collateralized through a QDRO.

• Temporary Support – Another common misconception about a QDRO is that its issuance and perfection must await the divorce decree. Remember that a QDRO can be entered pursuant solely to a “domestic relations order”, which is any judgment, decree or order. There is no rule that a QDRO be entered solely pursuant to an order as to permanent relief.

• Attorney’s Fees – Of note, the language of ERISA does not recognize that a QDRO can be entered for anything but support or property division, and thus the QDRO would have to be characterized as “support”.

There’s no better way to say it, so I’ll just copy it straight from the Forbes’s article:

[W]ith the right wording, and a general understanding of the law and the dynamics of the Plan, a QDRO could be a tremendous tool to ensure fairness.

[T]here are many complicated angles to a QDRO, and it should come as no surprise that many attorneys outsource QDRO preparation to a specialist.  Make sure that you, too, are getting expert advice.

Blog Posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.