Qualified Domestic Relations Order (QDROs)

Lesson

A Qualified Domestic Relations Order (QDRO) is a legal document allowing an alternate payee, such as a spouse or former spouse, to receive a portion of a retirement plan participant's benefits in divorce or legal separation. QDROs are used to divide retirement assets without incurring tax penalties and are subject to the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.

Practice Question #1

What is the primary purpose of a Qualified Domestic Relations Order (QDRO)?

A) To divide marital property equally

B) To establish alimony payments

C) To divide retirement assets without tax penalties

D) To transfer assets between spouses without court involvement

Select an option above to see an explanation here.

A) QDROs specifically address retirement assets, not all marital property. B) Alimony payments are separate from the division of retirement assets. C) QDROs allow for the division of retirement assets without incurring tax penalties. D) QDROs are court orders and require court involvement.

Terms

Qualified Domestic Relations Order (QDRO):: A court order that allows an alternate payee to receive a portion of a retirement plan participant's benefits.
Alternate Payee:: A spouse, former spouse, child, or other dependent who a QDRO recognizes as having a right to receive benefits from a retirement plan.

Practice Question #2

Which of the following retirement accounts does NOT require a QDRO for division in a divorce?

A) 401(k)

B) Pension plan

C) Individual Retirement Account (IRA)

D) 403(b)

Select an option above to see an explanation here.

A) 401(k) plans are subject to QDROs. B) Pension plans are subject to QDROs. C) IRAs are not subject to ERISA and do not require a QDRO for division in a divorce. D) 403(b) plans are subject to QDROs.

Do Not Confuse With

Transfer incident to divorce:: A tax-free transfer of retirement assets between spouses as part of a divorce settlement, which does not require a QDRO.
Alimony:: Financial support paid by one spouse to another after a divorce, which is separate from the division of retirement assets.

Practice Question #3

What federal law governs Qualified Domestic Relations Orders (QDROs)?

A) Social Security Act

B) Employee Retirement Income Security Act (ERISA)

C) Internal Revenue Code

D) Fair Labor Standards Act

Select an option above to see an explanation here.

A) The Social Security Act does not govern QDROs. B) ERISA sets minimum standards for retirement plans and governs QDROs. C) The Internal Revenue Code contains tax laws but does not explicitly govern QDROs. D) The Fair Labor Standards Act does not govern QDROs.

Historical Example

In the 1980s, a landmark court case established the right of a divorced spouse to receive a portion of their ex-spouse's pension benefits through a QDRO. This case led to the creation of QDROs as a standard part of divorce settlements involving retirement assets.