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Relevance of QRDO (Qualified Domestic Relation Order) to the 401K Plan

January 23rd, 2008 · 28 Comments

  

Divorce decree is considered as QRDO only when the division of your 401k plan assets and other assets is ordered by a court of law within the purview of existing laws in the state. The QRDO which incorporates following information is considered to be a valid QRDO.

  • Name and mailing address of the employee
  • Alternate payee’s name(s) and address.
  • Guidelines/directions for deciding percentage or amount.
  • Amount or percentage of your assets to be paid to an alternate Payee.
  • Period and number of payments to be made
  • Descriptions of plans which are affected by QRDO

How to verify QRDO

Whenever a court of law orders a QRDO that subjects you 401k plan assets to division, you must provide a copy (either original or certified copy from the court) of such order to your plan administrator. Your plan administrator will complete the necessary formalities required for establishing QEDO as legal document. The formalities required to establish legality of QRDO are included in 410k plan rules. Legally speaking such formalities include procedures like:

  • Acknowledging employee and alternate payee the receipt of court order and intimating them the procedures to be followed for order verification.
  • A maximum of 18 month time is permissible for establishing the validity of QRDO.
  • Amounts payable to alternate payee during the interim period of evaluation are to be calculated separately.
  • Intimating the employee and alternate payee regarding the validity of QRDO.

Division of 401k plan assets in Divorce case

Division of your 401k plan funds depends on in which state you are living in. Usually, equitable distribution of 401k assets is done in case of divorce settlement. It means in an employee and his/her divorced spouse are entitle for 50% each of the 401k assets. Other factors like duration of your married life, distribution of other marital assets, and contribution of divorcee and spouse plays a major role in deciding the ratio of asset division.

However, these factors will not have any effect on 401k assets division if an employee is living in sate that has adopted community property law and the assets will be divided equally. In U.S. states like Arizona, Wisconsin, Idaho, California, Nevada, Louisiana, New Mexico, Texas and Washington have adopted community property law.

Disposal of QRDO Assets

You have multiple options to dispose off or invest the assets you received by means of QRDO. Continuing the plan or rolling over the assets in the plan that provides you tax-deferred facility is considered as the best option. You may in need of financial help as you might have spent lot on legal proceedings (paying to attorneys). If you opt for a lump-sum cash withdrawal of the assets, you will have to pay huge taxes on such amount. This means you will be financially looser by cashing out. It will also have adverse effect on your future investment plans and savings.

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Category: 401k Plans

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28 responses so far ↓

  • 1 401K Plan and Divorce // Jan 23, 2008 at 12:07 pm

    […] ← 401K Plan and Taxes Contents of QRDO […]

  • 2 Brenda Bowman // Mar 31, 2009 at 5:50 pm

    I am trying to see if it really will take 18 months for my husband’s 401k retirement plan to send me my share of the retirement plan. I need it to get back on my feet. All the paper work have been submitted and the funds have been removed from the account.

  • 3 Kylie Batt // May 3, 2010 at 4:33 am

    Конечно. Так бывает. Можем пообщаться на эту тему. Здесь или в PM.

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    Name and mailing address of the employee
    Alternate payee’s name(s) [….

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