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Of all the property that must be divided in a Minnesota divorce, retirement accounts are among the most challenging to split up. Often the asset is partly marital and partly non-marital, which poses its own challenges. The real issue is that pensions and certain other employer-provided retirement accounts must be divided using a Qualified Domestic Relations Order, better known as a QDRO (pronounced “quadro”). What is the process for getting a QDRO, and why is it necessary?
Let’s take that second question first. Employer-provided retirement benefits are governed by federal law: the Employee Retirement Income Security Act, or ERISA. ERISA covers, among other things, how these assets must be divided in a divorce. There are two types of employer-provided retirement benefits: defined benefit plans and defined contribution plans. Pensions are defined benefit plans; the recipient receives a payment of the same amount each month in retirement. Defined contribution plans include 401(k)s, 403(b)s, profit-sharing plans, and employee stock ownership plans. Individual Retirement Accounts, or IRAs, are not provided by an employer and do not need to be divided using a QDRO.
Each employer-provided retirement plan has requirements an order must meet to effectively divide the benefits. Here is a general guide to the steps in the process, and why it is so important to have the help of an experienced professional.
A divorce decree may provide that the couple will divide their retirement accounts, but that provision is only the beginning. An attorney or QDRO professional then needs to take the following steps:
Obviously, the time estimates for each step are just that: estimates. If a party lets the draft QDRO languish unread at the bottom of a pile of mail, or a Plan Administrator has a backlog of work, the overall process may take longer. If everyone is operating efficiently, things could take less time. Federal law requires that a QDRO must be implemented within a “reasonable time;” one court case found that 180 days between receipt of a certified copy of the QDRO and implementation was reasonable.
The steps above make the QDRO process seem very straightforward. In reality, the process can be tangled in red tape. The documents required, and the language they contain, is complex. Plan Administrators may be difficult to reach. If the preparer makes an error in the draft QDRO, the Plan Administrator may reject it, and the process may take another several weeks. The QDRO process is sufficiently time-consuming that even many experienced family law attorneys outsource this particular work to professional QDRO preparers.
If you fail to have a QDRO prepared, or fail to complete the steps in the process (for instance, by having the QDRO signed by the judge, but not submitted to the Plan Administrator for final approval and implementation), the consequences may not be apparent for years. By that time, it could be too late—and tens or hundreds of thousands of dollars you were counting on for retirement could be out of your reach.
If you have questions about dividing retirement assets in divorce, or the process for getting a QDRO, please contact Mundahl Law.