A Primer on the History and Proper Drafting of Qualified Domestic-Relations Orders
79 Pages Posted: 11 Jun 2011 Last revised: 18 Nov 2013
Date Written: April 7, 2011
The divorce rate in the United States is slightly more than one-half the marriage rate. Divorce is a fact of life in this country, and will likely be so for the foreseeable future. On August 23, 1984, the divorce lawyer’s job got more complicated when Congress created the Qualified Domestic Relations Order (“QDRO”) as part of some significant amendments to ERISA. QDROs are necessary because before those 1984 ERISA amendments, a lot of divorced persons discovered that they could be deprived of their marital or community property interest in their former spouses’ retirement plans. For most divorcing couples, the two largest assets of the marriage are the marital home and retirement accounts. Over ninety-nine million persons participate in private sector retirement plans, and those plans’ assets total more than $4 trillion, which exceeds the total value of all residential real estate in the United States. Dividing retirement accounts is not as simple as a court decreeing that each party gets one-half of the other party’s account. It takes a properly drafted QDRO to make sure each party gets his or her marital or community property share of the other’s retirement benefits. Drafting a QDRO can be time consuming, complex, and frustrating in part because it requires lawyers who primarily practice state law to have a working knowledge of parts of the notoriously lengthy and complex ERISA. A substantial number – perhaps a majority – of QDROs are not prepared properly because they do not reflect the parties’ understanding of what they were awarded in the divorce proceeding. In fact, a former administrator for a retirement plan stated that between fifteen and twenty percent of the time, lawyers fail to see a QDRO through to completion. This article will detail the history leading to the creation of QDROs, explain what QDROs are, and offer suggestions on what pitfalls to look for and avoid in drafting them.
Keywords: ERISA, QDRO, REA, Domestic Relations, Family Law, 401(k), 403(b), Pensions, PBGC
JEL Classification: J12
Suggested Citation: Suggested Citation