Many retirement plans are organized under the Employee Retirement Income Security Act of 1974. Such plans are referred to as ERISA qualified plans. The law provides specific rules for how to transfer an interest in an ERISA qualified plan to a spouse in a divorce. The retirement assets can only be transferred by a court judgment, order or decree. When an order is issued that meets the requirements of ERISA, it is called a Qualified Domestic Relations Order. The QDRO transfers all or part of the employee spouse's retirement benefits to the non-employee spouse.
These are complicated documents that are usually drafted by one of the party's attorneys. The document must contain specific information required by statute, such as the parties' names and addresses, name of the plan, specific amount or percentage to be transferred and time period for the payments. The QDRO can only divide up those benefits the employee has available under the plan. The attorney will often send the draft QDRO to the plan administrator for pre-approval to ensure the plan agrees that the draft meets all legal requirements.
The QDRO is then signed by the parties and submitted to the judge for approval. The approved document is filed with the court. For clarity, a QDRO is usually prepared as a separate document even though the law allows it to be part of a court approved property settlement or divorce decree. A QDRO can be implemented before the final decree of divorce in states that allow approval of property settlement agreements prior to finalization of the divorce. It is more commonly issued as a judgment or decree after or at the same time as the final divorce decree is entered.
After the QDRO is approved, it is sent to the plan administrator. Some companies refuse to process a QDRO until the final decree of divorce is issued. Once accepted, the QDRO stays on file with the plan administrator. Payments are issued to the spouse in the amounts and at the times set forth in the document. If the retirement account is a pension, payments usually start after the employee spouse retires. If it is a plan where funds are immediately available, such as a 401(k), the transfer usually occurs as soon as the document is processed.