By Lisa Pletcher

When you need to transfer an interest in a qualified retirement plan, you'll need to use a QDRO, a Qualified Domestic Relations Order. In QDRO language the person whose interest is being transferred is called the "participant" (because they're a participant in the retirement plan). The person to whom the interest is transferred is called the "alternate payee."

A "qualified domestic relation order" (QDRO) is a domestic relations order that creates or recognizes the existence of an alternate payee's right to receive, or assigns to an alternate payee the right to receive, all or a portion of the benefits payable with respect to a participant under a retirement plan, and that includes certain information and meets certain other requirements.  ERISA § 206(d)(3)(B)(i); IRC § 414(p)(1)(A)

A state court must issue a judgment, order, or decree or otherwise formally approve a property settlement agreement before it can be a domestic relations order under ERISA. The mere fact that a property settlement is agreed to and signed by the parties will not, in and of itself, cause the agreement to be a domestic relations order.

A domestic relations order can be a QDRO only if it creates or recognizes the existence of an alternate payee's right to receive, or assigns to an alternate payee the right to receive, all or a part of a participant's benefits. For purposes of the QDRO provisions, an alternate payee cannot be anyone other than a spouse, former spouse, child, or other dependent of a participant.  ERISA § 206(d)(3)(K), IRC § 414(p)(8)

QDROs must contain the following information:

§  The name and last known mailing address of the participant and each alternate payee

§  The name of each plan to which the order applies

§  The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee

§  The number of payments or time period to which the order applies

ERISA § 206(d)(3)(C)(i)-(iv); IRC § 414(p)(2)(A)-(D)

Although every QDRO must contain certain provisions, such as the names and addresses of the participant and alternate payee(s) and the name of the plan(s), the specific content of the rest of the QDRO will depend on the type of retirement plan, the nature of the participant's retirement benefits, the purposes behind issuing the order, and the intent of the drafting parties.  To ensure that the QDRO meets the requirements of the plan, it is best to contact the plan administrator directly.  Most plans provide a model form to be used in drafting the QDRO.

Under Federal law, the administrator of the retirement plan that provides the benefits affected by an order is the individual (or entity) initially responsible for determining whether a domestic relations order is a QDRO. Plan administrators have specific responsibilities and duties with respect to determining whether a domestic relations order is a QDRO. Plan administrators, as plan fiduciaries, are required to discharge their duties prudently and solely in the interest of plan participants and beneficiaries. Among other things, plans must establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions pursuant to qualified orders. Administrators are required to follow the plan's procedures for making QDRO determinations. Administrators also are required to furnish notice to participants and alternate payees of the receipt of a domestic relations order and to furnish a copy of the plan's procedures for determining the qualified status of such orders.  ERISA §§ 206(d)(3)(G)(i) and (ii), 404(a), 502(a)(3), 502(e), 514; IRC § 414(p)(6)(A)(ii)

Once the QDRO is approved by the Court, the plan will distribute the portion awarded to the alternate payee.

Since your ex-spouse becomes entitled to this money, he/she will also be responsible for paying the related income taxes when that money is received in the form of a pension, annuity or withdrawals. In effect, your ex-spouse becomes a co-beneficiary of your existing qualified plan pension account.

Also, the QDRO arrangement permits your ex-spouse to withdraw his/her share and roll the money over into his or her own IRA to the extent current withdrawals are permitted by the terms of the qualified retirement plan. The IRA rollover procedure allows your ex-spouse to take over management of the money while continuing to postpone taxes until funds are withdrawn from the IRA.