Frequently Asked Questions

General QDRO Questions

What is a QDRO?

QDRO is an acronym for qualified domestic relations order. A QDRO is a court order required to divide retirement benefit plans between divorcing couples. A QDRO can also be used to collect arrears on child support, spousal support, along with other creative options. If your divorce agreement awards you all, or a portion, of your former spouse’s plan, a QDRO is required to secure your award.

How does Divorce Financial Solutions, LLC fit into the QDRO process?

We are experts in working with retirement plans, specifically in the divorce setting. We have an experienced family law attorney on staff that prepares QDROs for all types of plans that include corporate, government and military. We draft a proposed order, send them to the plan for pre-approval and, if necessary, make any required changes to the draft until acceptable for the Plan. Once we have pre-approval from all concerned parties, we will prepare final documents to send for signatures and stamp by the Court. Upon signage, instructions ask that the QDRO be forwarded to our office so we can properly serve the QDRO to the plan. These services are all included in our flat fee.

What does Divorce Financial Solutions, LLC provide for its flat fee QDRO draft process?

1. Gather Information
We need complete information about both parties such as names, addresses, social security numbers, dates of birth, date of marriage and date of divorce. We also require a copy of divorce or separation agreement. In addition, we need a copy of the plan’s Summary Plan Description and the plan’s required written QDRO procedures. We will contact the Plan directly to request this information if it was not included with the information provided to us.

2. Drafting your QDRO
Once we have gathered all the information, we will prepare a draft QDRO and send it to your counsel for review and approval. We will make and send copies to all parties if instructed in writing to do so. We pride ourselves in getting a draft QDRO out within 7-10 business days of receipt of all necessary information, including fee payment.

3. Approval by the other Party
Once your legal counsel and/or you approve the draft, your legal counsel may send the draft to your former spouse and/or their attorney for review and approval. If we have been hired as a neutral party, this is handled simultaneously. Under reasonable, suitable and logical situations, the opposing party should accept the QDRO draft as long as it is pursuant to the terms and conditions of your agreement and the terms of the plan. We recommend obtaining opposing side’s approval of the QDRO draft to avoid additional delays and attorney fees that may occur if this step is bypassed.

4. Approval by the Plan
We send the draft QDRO simultaneously to the plan for a pre-approval. It is not unusual that a plan request changes. Do not get upset if you receive a letter from the plan stating the QDRO draft is unacceptable. If the plan requests any changes, our office will negotiate and make necessary changes. They usually involve very minor changes in wording, which we will make certain does not affect the benefit payments involved.

We do not seek, nor is pre-approval available, for Federal, State and Military plans, Wisconsin Retirement System and many Fidelity based plans.

5. Court seal and Judge’s signature
Upon receipt of pre-approval from the plan, we will draft a final form QDRO and send that to your legal counsel and/or opposing counsel. The final order is ready for signatures and this part is completed by your legal counsel and/or the parties. We include a signature line for attorneys as a courtesy, not by requirement. If all signatures cannot be obtained, let our office know. Divorce Financial Solutions does not present the order to the judge, but rather your legal counsel or opposing counsel.

6. Obtain a certified copy of the QDRO
Once the QDRO is signed by the attorneys and/or parties, the judge and a court seal is attached, you should obtain at least 3 certified copies of the QDRO. Send us an original certified copy (not a copy of the copy) which is one that contains the original signatures of everyone, and a clerk of court seal. This information is also within our delivery letter.
Certified copies, additional forms and documents are required for military and federal government plans. . Our office will provide these documents and instructions when necessary.

7. Serve the QDRO on the Plan
Our office will send the original signed, sealed QDRO to the plan via certified mail. We provide counsel and/or the parties with the tracking number. The QDRO is usually approved quickly by the Plan and the participant and alternate payee will be notified directly from the plan. Our office is not likely to receive any communication beyond this point. This process concludes our service for the flat fee arrangement.

Am I charged additional fees if I call Divorce Financial Solutions, LLC to ask questions?

Our flat fee is a drafting and processing fee. It includes any and all communication between Divorce Financial Solutions, your legal counsel, opposing legal counsel, and the Plan. However, our flat fee does not cover communications and consultation with the participant and/or alternate payee without incurring additional fees. This document is designed to answer the basic and most frequently asked questions and to keep your costs fixed.

If I call Divorce Financial Solutions, LLC with an inquiry, will I automatically be billed extra?

No. If your question requires additional work on our part or additional discovery work, we will notify you up front of any additional charges. Examples of services we provide that could incur additional fees include, but are not limited to, providing assistance regarding when you may be eligible to collect a benefit, take receipt of the benefits, or providing assistance with paperwork to take a distribution or rollover funds to an IRA. We have qualified staff available for such services. We do not provide financial planning services or investment advice.

How long does the QDRO process take?

The time frame for completing the QDRO process is usually between 30 and 120 days, but it can vary depending on complexity. Factors, such as an intricate plans or lack of cooperation, can slow down the process. Our office has little control when other parties are responsible for approving the draft. Step 4, approval by the plan is without question, the longest part of the process because we are waiting on the plan administrator to review documents. We do regular and routine follow-ups with each plan to keep the QDRO process moving forward as quickly as possible.

What about taxes?

The individual who receives a distribution directly from a plan is the person that is taxed on the proceeds. There is one exception: where the QDRO draft is for a child support order. Under this circumstance the participant will be the person who must pay the taxes.

Participant QDRO Questions

Why should we secure a QDRO now rather than waiting until I retire?

The benefits awarded to your former spouse are at risk. If there is a delay obtaining a QDRO your former spouse may unintentionally lose valuable rights and there is a potential forfeiture or risk of total loss to your former spouse. Some plans change plan administrators and often the historical information is not passed along and/or shared with the new custodian of the Plan. That means a plan may not be capable of going backward and calculating a benefit awarded at a point in time today, but not paid until sometime 10-20 years in the future. In other words, as time passes the records may not be available to determine the benefit payable at retirement. In most circumstances the Plan will segregate the benefit into a separate account for the former spouse rendering calculations at a later date unnecessary

I paid my half of the QDRO fee due; my former spouse has not. What can I do?

This is a common issue. Unfortunately, we will not proceed without payment in full. We accept MasterCard, Visa and Discover credit cards. Payment arrangements can be set up with our billing department. We strongly recommend that payment in full be made as soon as possible to be assured that the process continues in a timely manner. You may seek reimbursement from your former spouse or speak with your legal counsel about what rights you have if your former spouse is not paying his/her share promptly and is delaying the process as a result. Our office cannot get involved with fee and payment disputes between former spouses.

Does a QDRO affect when I can receive my pension or retirement funds?

No. Some plans have provisions such as “30 years of service and out” to receive an “unreduced” retirement benefit as an example. A QDRO may in fact award 15 years of those 30 years of service to a former spouse, but those years will not detract from the 30 years and out provision as an example. The employer plan will still treat the participant as if you had a total of 30 years of service under the terms and conditions of the plan for early retirement, albeit the calculation of your actual benefit is less the amount awarded to your former spouse.

If you are not familiar with the terms of the plan you should consult with a qualified financial advisor familiar with pensions and other retirement plans incident to a divorce. Our office has qualified advisors to help you navigate these questions and concerns. We offer consultation regarding all aspects of the QDRO, including how it works for you and how you may or may not use the funds to your advantage.

Alternate Payee QDRO Questions

Alternate Payee QDRO Questions Copy: Why should I secure my benefits now rather than waiting until my former spouse retires or until I need the money?

The benefits awarded to you are at risk. If you delay obtaining a QDRO, you may unintentionally lose valuable rights including a potential risk of total loss. Some or all of your rights may be compromised if your former spouse retires, remarries, passes away, terminates or loses employment, withdraws money from the Plan, and/or takes out a loan from the Plan.

I paid my half of the QDRO fee due; my former spouse has not. What can I do?

This is a common issue. Unfortunately, we will not proceed without payment in full. We accept MasterCard, Visa and Discover credit cards. Payment arrangements can be set up with our billing department. We strongly recommend that payment in full be made as soon as possible to be assured that the process continues in a timely manner. You may seek reimbursement from your former spouse or speak with your legal counsel about what rights you have if your former spouse is not paying his/her share promptly and is delaying the process as a result. Our office cannot get involved with fee and payment disputes between former spouses.

When do I receive my pension or retirement funds?

Some plans allow immediate distribution after the order is deemed a QDRO. These plans are usually defined contribution plans such as 401(k) plans, 403(b) plans, and profit sharing plans. Other plans, mostly traditional pension plans, rarely make the benefit payable to the alternate payee until the earliest retirement age of the participant which is typically age 50 or 55. All plans have their own terms and conditions regarding the timing and available forms of payment to an alternate payee. In the case of a traditional pension plan, the alternate payee’s access to those benefits are derived through the participant’s eligibility to those benefits regardless of whether or not the participant chooses to commence his/her benefits. The terms and conditions of each plan apply. All of our drafts require the plan to make your funds available to you at the earliest possible date allowed under the terms of the plan.

If you are not familiar with the terms of the plan, you should consult with a qualified financial advisor familiar with pensions and other retirement plans incident to a divorce. The QDRO allows the alternate payee more flexibility than the participant and has some benefits that are not available to married participants. An advisor uninformed about QDROs could potentially make a serious mistake. Our office has qualified advisors to help you navigate these questions and concerns. We offer consultation regarding all aspects of the QDRO, including how it works for you and how you may or may not use the funds to your advantage.

Does the plan pay me a lump sum?

It is all contingent on the type and the terms of the plan. Most defined contribution plans such as 401(k), 403(b), 412, 457(b) and the Federal Thrift Savings Plan almost always allow a lump sum, but there are a few plans that do not. Most, but not all, pension plans do not offer a lump sum. A QDRO cannot require the plan to pay a benefit to an alternate payee or provide a benefit option to an alternate payee that is not a benefit or option provided to the participant or available under the Plan. One of our professionals could determine if the plan offers a lump sum and consult with you regarding whether or not the lump sum is a good option for you. Our professional staff can also help you with the paperwork necessary to take a distribution and if properly processed will avoid the federal 10% premature distribution penalty taxes normally associated with distributions from retirement plans prior to age 59 1/2. These services are offered at additional cost.

What are my options once the funds are in my name?

1. Rollover the proceeds to your IRA or employer sponsored plan. Most all 401(k) type employer plans allow rollover contributions. You should discuss this process with your financial advisor or with one of our professionals at Divorce Financial Solutions. Once you rollover the proceeds to your employer 401(k) plan and/or an IRA plan, you lose the ability to take a premature distribution and avoid the premature distribution penalty tax that was afforded to you through the QDRO process.
If the plan is a pension plan, a lump sum distribution option must be available to do a rollover. If not, the plan will pay a monthly benefit. In any event, you as the alternate payee are the person that must initiate a distribution. In most circumstances, a lump sum distribution and/or rollover is not automatic.

2. Retain the distribution with the current plan, if allowed, in your name as an alternate payee. There are no time limits. As long as the account remains titled as an “alternate payee” account, a subsequent distribution can avoid penalty taxes. All distributions are taxable at ordinary income tax rates but not at the 10% Federal premature distribution penalty and the State of Wisconsin’s 3.3% premature distribution penalty (prior to a distribution before age 59 1/2). The plan is required to withhold Federal tax at 20%. This is the same as having Federal income tax withheld from your paycheck. If you are in a higher tax bracket, you may still owe Federal tax on your distribution where someone in a lower bracket might get a refund. State taxes apply if you live in a state that has income tax. Most plans will not withhold state tax unless specifically requested. Plans are required to allow one single premature distribution and then most plans convert the account to an IRA. Once converted, you lose access to the funds without premature penalty. You will have all the same investment choices as the participant and be allowed to transfer and arrange your investment accounts.

If the Plan is a pension plan and does not allow for a premature lump sum distribution, the plan will carve out your portion of the monthly benefit and maintain a separate account for you. You should seek additional financial advice as to the best possible use and timing of the monthly benefit. Our staff of professional advisors can help.

3. Request a distribution. The plan is required to withhold 20% toward Federal income taxes. If it is a pension plan and you are requesting a monthly benefit paid that will be paid over your lifetime, you may request that taxes are withheld. You may also request that taxes are not withheld as part of the paperwork required to initiate a monthly distribution.

4. A combination of the above.

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