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What is a Qualified Domestic Relations Order (QDRO) in NJ?

Couple distressed from financial problems mounting bills

Not all marital assets are readily divisible. While some divorces involve only bank accounts, stocks, and real estate, other divorces involve more complex assets. Depending on the asset, additional resources may be necessary to value, apportion, and distribute those assets. Retirement accounts are relatively common marital assets that often require additional administrative hassle in order to distribute upon divorce. Retirement accounts often require the parties to obtain a Qualified Domestic Relations Order prior to distribution. To learn about these special court orders and how they operate in a New Jersey divorce, continue reading. If you are considering divorce or for help with any other New Jersey family law matter, call a seasoned New Jersey property distribution and divorce attorney.

What is a QDRO?

A Qualified Domestic Relations Order (QDRO) is a special type of court order used to give some or all of a retirement account to the spouse of the person who earned the plan through their employment. Many retirement plans are legally prohibited from distributing retirement assets to anyone other than the named plan participant without specific court authorization. The QDRO authorizes the retirement plan to make distributions to the participant’s current or former spouse (the “nonparticipant”). QDROs also include instructions on how to value and distribute the retirement plan assets.

How Are QDROs Used in a New Jersey Divorce?

New Jersey law considers retirement assets to be marital property, subject to division upon divorce. If a divorce judgment calls for the nonparticipant spouse to receive a portion of the retirement account, the parties will prepare a QDRO for the judge to sign and so-order. The QDRO will dictate what portion of the plan will be distributed to the nonparticipant spouse and will direct the plan administrator when and how to do so. The QDRO authorizes the plan administrator to distribute funds to someone other than the participant, and it also allows for “early” distribution of retirement funds without triggering the tax penalties that typically accompany the early withdrawal of retirement funds.

QDROs are typically drafted by one or both attorneys, rather than by the court. The parties may retain financial experts to help with drafting the QDRO, and they may send the QDRO to the financial institution holding the retirement account for “prequalification”–meaning that the parties can obtain confirmation that the QDRO meets the institution’s requirements before asking the court to sign. Once signed, the court will send the QDRO to the financial institution, directing the plan administrator when and how to distribute the funds to the nonparticipant spouse.

What Types of Plans Are Divisible By QDRO?

Not all retirement plans require a QDRO for division. QDROs are used to divide and distribute “defined benefit plans,” typically called pensions. With defined benefit plans, employers pay into plans that distribute a fixed monthly amount to employees after retirement.

QDROs are also used to distribute assets from certain “defined contribution plans.” Defined contribution plans involve employees and employers contributing funds to an account that grows over time. The employee is not able to access the funds until retirement; early withdrawal can lead to tax consequences and other penalties. There are a number of defined contribution plans, such as:

  • 401(k) plans
  • 403(b) plans
  • 457 plans
  • Employee stock ownership plans
  • Profit-sharing plans

QDROs are not used to divide individual retirement accounts (IRAs), pensions from the government or military, deferred annuities plans, and other non-qualifying retirement plans. A standard court order can be used to divide these accounts, although the parties may need to make special accommodations to avoid tax penalties and other issues as a result of the distribution.

Get Experienced Legal Help With Your New Jersey Property Distribution Matter

If you need dedicated and effective legal help with property division, child custody, child visitation, premarital agreements, child support, or other family law matters in New Jersey, contact the Union offices of family law attorney John B. D’Alessandro at 908-964-0102.

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