Friday, July 13, 2012

QDRO Forms Are Required to Divide Retirement Assets, Such As Pensions and 401ks, in Divorce Cases

QDRO forms are used for the purpose of dividing retirement assets, such as a pension or 401k plan, in a divorce a proceeding. Regardless of whether you live in a community property state (for example. California) or Equitable Distribution (also known as "common law") state, such as New York, the marital portion of a retirement plan is distributable in a divorce case. State laws which define what types of property are marital, and thus subject to division in a divorce, are not preempted by ERISA. However, the ERISA preemption requires that division of retirement assets (pensions, 401k's and similar accounts) be accomplished through qualified domestic relations orders (QDRO's).

In all jurisdictions, the marital portions of pensions and other types of 401K plans are presumptively subject to division in divorce. Each year, tens of thousands of qualified domestic relations orders are approved by plans and issued by state divorce judges. If a state-specific QDRO sample is used for guidance. A valid QDRO form can be prepared quickly and easily. Upon preparation, the proposed QDRO is then submitted to the retirement plan administrator and the court, for approval.

The necessity of using a QDRO form to divide pensions, profit sharing plans, and 401k plans in divorce results from certain provisions that are contained in a federal law known as the Employment Retirement Security Act (ERISA). Until 1984, two provisions in ERISA raised questions as to whether a state court could even issue an enforceable order for the distribution of retirement benefits. These two provisions were ERISA's: (a) preemption provision, which made regulation of retirement plans a matter of exclusive federal interest; and (b) spendthrift provision, which restricted a plan participant's ability to assign his or her benefits under a pension plan covered by ERISA.

Because of concerns that ERISA's spendthrift and preemption provisions affected the validity of state court domestic relations orders (DROs), Congress enacted the Retirement Equity Act of 1984 to exempt QDRO's from those provisions. Congress provided that the spendthrift provision "shall not apply if the order is determined to be a qualified domestic relations order [QDRO]." Consistent with this language, Congress added an exception to the express ERISA preemption provision, stating that the preemption provision "shall not apply to [QDROs] " Under a QDRO, an alternative payee is treated as a plan beneficiary.

A DRO is "qualified" if it "creates or recognizes the existence of an alternate payee's right to, 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 plan." The QDRO provisions define "alternate payee" to mean "any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant."

Valid QDRO forms are available for download. However, it is important that divorce litigants and attorneys carefully select the type of qdro template that they use based on the type of retirement plan that is being divided.

Article Source: http://EzineArticles.com/4513669

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