The ABCs of QDROs

By: Jillian DiLaura McGuire

When a couple is going through a divorce, one important consideration is the division of assets, which frequently includes retirement assets such as 401(k)s, pensions, and other plans.  To effectuate the division of these plans, typically a specific document called a Qualified Domestic Relations Order (QDRO) is required.  The individual requirements of a QDRO are often complicated and very plan-specific.  It is typically advised that QDROs be drafted by a knowledgeable attorney who has training and experience in this area.

The QDRO is entered by the presiding judge following the entry of the Judgment of Divorce, although the terms of the division are either negotiated or ruled on prior to that point.  In Settlement Agreements or Opting Out Agreements, or in oral stipulations placed on the record, retirement accounts are frequently divided “pursuant to the Majauskas formula.”  This is legal shorthand and refers to the case Majauskas v. Majauskas, 61 N.Y.2d 481 (N.Y. 1984).  Majauskas held that “vested rights in a noncontributory pension plan are marital property to the extent that they were acquired between the date of the marriage and the commencement of the matrimonial action, even though the rights are unmatured at the time the action is begun.”  In other words, regardless of title, a spouse is entitled to receive one-half of the marital portion of a pension that accrues from the date of marriage until the divorce action is filed. Additionally, Majauskas established that the formula for dividing the benefit was based on the benefits accrued at retirement.  Distribution may be effectuated through an equitable portion of the present value of the spouse’s pensions rights earned during the marriage or by providing a portion of each payment received upon retirement.

Even with this knowledge, there are still some very important points to keep in mind:

(1)  Simply referencing Majauskas is not always sufficient.  For example, the formula alone does not address complexities such as pre- or post-retirement death benefits.  The individual set of circumstances must be considered in each case and any further terms or considerations must be clearly delineated.

(2)  The terms of the QDRO must exactly reflect the terms as stated in either an Agreement or Stipulation, so it is important to negotiate at the outset and fully place all terms of any agreement on the record (or argue for such in the case of a litigated matter).

(3)  It can often be helpful to negotiate who will be responsible for the cost of preparing a QDRO.  This can be a shared expense when using a neutral attorney to draft the documents, or it can be assigned to one party.  Keep in mind that the party receiving the money is often in the most vulnerable positon and should have final reviewing power over any QDRO that is submitted.

(4)  Simply because a divorce decree and QDRO have been entered does not mean that a former spouse is automatically not a beneficiary on the plan.  Typically, a separate step is required to effectuate this.  Please see Part 2 of this series for more information on this point.

Understanding the complexities of a QDRO can be daunting, but it is important to understand the basic principles.  And of course, there are attorneys with the requisite expertise available to help navigate these tricky waters.

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