A QDRO or Qualified Domestic Relations Order is a document that is signed by the judge that splits a qualified contribution retirement plan or a qualified defined benefit plan. Sometimes a retirment plan is not considered qualified and in those cases the document would be called a Domestic Relations Order becuase it is not covered under the ERISA (The Employee Retirement Income Security Act of 1974). ERISA is a Federal Law that outlines and sets minimum standards for retirement and health benefit plans.
The QDRO document would be used in the case of a divorce to help when splitting assets. The two types fo assets are Defined Contribution Plans and the other type of asset is a Defined Benefit Plan. The Defined Contribution Plan would be a 401(k), 403(b), 457(b) or a similar vehicle. These types of plans are contributed by the employee and the employer also contributes into a fund and that amount can be vested immediately or vested after a certian period of time. The Defined Benefit Plan is a plan that provides a certain income post retirement based on a certain number of years of service.
The Defined Contribution Plan is easy to value and easy to split because there is a statement that shows how much money was contributed into the fund and how much the employee is vested in the employer contributions. The amount that is not vested is not included in the marital amount. The marital portion of the plan is determined by taking the balance as of the start of the divorce action or if the party is stipulating the separation, as of the date they select. The balance from the marriage date is then subtracted from the current balance and that becomes the marital asset. This mariatl asset is usually split 50/50 between the parties, however this amount can be split in any way that each party feels fair in a mediation. In the case of a litigation case, the judge has various different factors in the statute to determine how to split the funds.
The Defined Benefit Plan is more complicated and not as easy to determine the value. Most of the time the courts use a formula that determines how to split the benefit post retirment. The formula, called the Majauskas Formula, will calculate the benefit by determining how many years the party have been married while the employee was employed and divide that by the number of years the employee is employed. The formula then multiplies 50% of that calculation to determine the ex-spouse’s portion of that benefit. This formula is then documented in the QDRO.
Once the QDRO is documented, this needs to be approved by the plan administrator and then sent to the judge for signing. Once the judge signs off on the QDRO, it is then sent back to the plan administrator for execution.
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