Qualified Domestic Relations Order (QDRO)

A qualified domestic relations order is a type of court order typically found in a divorce agreement that recognizes that the ex-spouse is entitled to receive a predefined portion of the individual's retirement plan. In most cases, the qualified domestic relations order (QDRO) allots 50 percent of the value of the assets gained from the beginning of the marriage to the time of the divorce to the ex-spouse.

When the distribution goes to the ex-spouse, the ex-spouse becomes responsible for any taxes incurred when the money is distributed. However, if the individual does not receive a QDRO and decides to distribute the retirement-plan assets to his or her ex-spouse, the individual will still be responsible for the taxes on the ex-spouse's portion of the money, even though he or she no longer possesses it. Retirement benefits from more than one retirement benefit plan can be subject to a QDRO if it clearly states the benefits that are assigned to the ex-spouse.

According to the U.S. Department of Labor’s Employee Benefits Security Administration, rules restrict certain provisions being included in a QDRO. The court order cannot force a retirement plan to give out any benefit or option that is not provided through the plan. The QDRO cannot require increased benefits from the retirement plan. Benefits cannot be required from a plan for an alternate payee when those benefits are already required be covered by another payee who is under the decree of another QDRO. A benefits plan cannot be required to cover benefits that are a qualified joint and survivor annuity for the ex-spouse and their successive spouses.

The beneficiary of a QDRO might be a relation other than an ex-spouse. For example, dependents might qualify to receive the ordered benefits. In such instances, the alternate payee is a minor or is determined to be legally incompetent, then the order can require the benefit plan to make payment to an individual with legal responsibility for that payee. This can include a guardian or a party acting as a parent to a child, as well as a trustee who serves as the agent of the individual.

The plan administrator who oversees the retirement benefits subject to the order will determine if a domestic relations order is a qualified domestic relations order. In these circumstances, plan administrators are then responsible for ensuring their duties are fulfilled on behalf of plan participants and beneficiaries.