Dividing assets during a divorce can be challenging. Potential tax penalties are certainly a concern, especially regarding retirement plans. A Qualified Domestic Relations Order (QDRO) is an option for divorcing couples to transfer a portion of a spouse’s qualified retirement plan without income tax penalties. Without a QDRO, any transfer of retirement assets could be taxable to the spouse initiating the transfer, plus an early withdrawal penalty if the individual is 59 1/2 or younger. What happens if people change their minds during the process? Can a QDRO be reversed or appealed?
Divorcing couples unfamiliar with QDROs and having questions about whether they can amend a QDRO or cancel it entirely, can find helpful information here about what a QDRO is and what to do if someone needs to amend one.
When Does Someone Need a QDRO?
The Internal Revenue Service (IRS) defines a QDRO as a decree, order, or judgment that requires a retirement plan to pay alimony, child support, or property rights to a current or former spouse or another dependent such as a child. Parties don’t necessarily need a QDRO with every retirement plan, only those involving qualified plans such as a 401(k) 403(b), or any defined benefit plan like a Union Pension. If someone’s assets include an applicable retirement plan or pension, the person would need a QDRO to enforce any settlement or judgment involving the division of retirement plan assets.
For defined contribution plans with a cash balance, the QDRO will specify the money’s allocation, whether a percentage or dollar amount. To avoid income tax penalties, the recipient spouse might take a lump sum, transfer the money into a non-IRA account, or move it into another retirement account.
It’s crucial to have an experienced lawyer reviewing the terms of a QDRO during the divorce process. Otherwise, a party could find themselves not fully protected.
Can a QDRO Be Canceled?
The process of obtaining a QDRO can be confusing to understand. Some spouses want to know — can a QDRO be canceled if a spouse changes one’s mind? Since a QDRO must be approved by the court and submitted to the retirement plan administrator, it’s nearly impossible to reverse or cancel a QDRO. One potential option is to amend a QDRO. However, amending a QDRO is not necessarily an easy process either.
How To Make Changes to a Final QDRO
Any domestic relations order changes would require the parties to go back to court again. They would need to return to the original court that initially issued the QDRO and request a new order that withdraws or supersedes the original QDRO. If the court agrees to make changes, the judge will issue an order to vacate the QDRO and reference the existing one on file with the plan administrator.
The best chance of getting a QDRO amended is if it does not accurately reflect the terms of the divorce agreement. If the QDRO contradicts the settlement agreement, the court will need to modify it. Otherwise, the recipient spouse would need the ex-spouse to agree to an amendment and change the terms willingly.
What Is the Timeline for a QDRO?
Obtaining a QDRO is not necessarily a quick process. Once the attorney drafts the paperwork, the process could take 60 to 90 days, minimum. Next, after both spouses review and sign the paperwork, the attorney submits the documents to the court, where court officials enter them into the case file.
What happens once the court approves a QDRO? The order gets sent to the plan administrator. Federal law gives the plan administrator up to 18 months to respond and approve or reject the QDRO. The complexity of the QDRO will impact the administrator’s response time to it.
What Is the Time Limit to File a QDRO?
Federal law does not impose a specific time limit to file a QDRO. However, some states might have a unique QDRO timeline, which parties need to adhere to, or it could jeopardize their QDRO.
The attorney files most QDROs for the recipient spouse. Parties shouldn’t assume their ex will do it as part of the divorce. It’s best not to delay filing a QDRO for many reasons. The beneficiary risks the plan participant retiring or passing away in the meantime. The individual’s ex could also withdraw the funds, take a loan, or roll over the funds to another account.
Another risk is the ex relocating. If the beneficiary waits years to file after the divorce, the person’s ex could have relocated elsewhere and be impossible to locate. The court must put the plan participant on notice so that all parties must be locatable.
QDRO Mistakes to Avoid
Parties need to research QDROs and ensure they aren’t putting their QDRO at risk by making a mistake. Some of the most common mistakes include:
- Failing to understand the plan type: QDROs vary based on the retirement plan type. Parties can save themselves the added time and expense of a QDRO amendment by ensuring they have the correct info to start.
- Misnaming the plan: Parties need the correct name of the plan; otherwise, an incorrect name can create confusion, primarily when multiple retirement plans exist, such as a 401(k) and a pension plan.
- Not hiring an experienced QDRO attorney: If parties try to save money by not hiring an attorney to prepare the QDRO, they could spend more money correcting any mistakes.
Mistakes can be costly when it comes to QDROs. They could force parties to go back to court to request an amendment to align with the terms of the divorce settlement agreement.
Contact a QDRO Lawyer in Nevada
The best way to avoid needing to have a QDRO reversed or appealed is to hire an experienced lawyer. A Nevada QDRO lawyer will ensure all documentation is in order and help parties avoid the most common mistakes that often lead to the need to reverse or amend a QDRO. The QDRO Masters at Willick Law Group have years of experience assisting divorcing couples with all their QDRO needs. Contact QDRO Masters today to schedule a consultation to learn more.