The most common use of a Qualified Domestic Relations Order (QDRO) is for the division of marital property. However, QDROs can also be used for child support and spousal support, and to collect arrears for these types of support. Retirement funds for support obligations are often overlooked by family law attorneys, but in many cases may be the only source of funds available. Unlike garnishment of wages, once a QDRO for support is entered by the court and accepted by the retirement plan administrator, even if the employee spouse moves out of state, quits his/her job, or minimizes taxable income by being paid in cash, a properly structured QDRO will ensure payment of outstanding support obligations.
Before assuming that a QDRO will solve all of your support problems, you should be aware of certain retirement plan limitations and other obstacles, which we have outlined for you below. We also explain how different types of retirement plans work better for arrearages than others. It is critical to remember that retirement plans are not forced to comply with California family law; if there is a conflict between the terms of the plan and the QDRO, the terms of the plan prevail.
Types of Plans and Timing
The two most common types of retirement plans are defined benefit plans (traditional pension plans) and defined contribution plans (such as 401(k) plans). QDROs will usually not be approved by the plan if QDRO changes the standard method of payment by the Plan.
For defined benefit plans, payments can usually only be made once the employee has reached the earliest retirement age allowable by the plan, and the payments will be made on a monthly basis. This means that if a person is a long way from retirement, it may be years before the retirement plan assets become available for support obligations. Defined benefit plans are best for a monthly support obligation for an employee who is at or very near to retirement age. Support QDROs for pension plans should specify the amount that the alternate payee will receive each month. Typically a lump-sum amount for support arrears will not be payable by a defined benefit plan. Unless the employee spouse obligated to pay support is already retired, a pension plan QDRO may not be an immediate solution.
In contrast, defined contribution plans are ideally suited for payment of lump sum child or spousal support arrears. Once you obtain a court order saying the lump sum that is owed, it is a fairly straightforward process to get a QDRO in place for the payment of that lump sum from a defined contribution plan. It is also important to note that more than one support QDRO can be filed for each retirement plan. For example, one QDRO could be filed for arrearages from 2001-2005 and another could be filed for arrearages from 2006-2011. Unlike pension plans, most defined contribution plans will not honor an order for a payment to be made for a support obligation on a monthly basis. Rarely, if a defined contribution plan is the only support asset for child support or for long term spousal support, then a court may order that a lump sum be withdrawn from the defined contribution plan. The lump sum would then be placed in an interest-bearing account and the monthly support payments could come from the account.
The QDRO should always specify the tax responsibility of the parties, otherwise the plan may just assign tax liability to the recipient of the funds. However, the general rules are: (1) for child support, the employee (plan participant) is liable for taxes on the amounts paid out for current or back child support; and (2) for spousal or family support, the recipient (alternate payee) must pay taxes on the amount received by him/her. Often for defined contribution plans, the plan will automatically withhold 20% of any distribution, so the total amount of the payment may need to be adjusted to account for tax issues.
The Process for Child Support or Spousal Support QDROs
In the simplest terms, the process for obtaining a QDRO for back child support or spousal support is:
- Locate the original judgment or court order that said what amount was to be paid (i.e. the original order for $500/month child support).
- For child support, you can contact the state/county child support agency to obtain a record of the amount owed.
- Have a QDRO drafted by an attorney or utilize form FL-460.
- Send the draft QDRO to the plan administrator for approval, revise if necessary.
- Once approved by the plan administrator, obtain the parties signature on the QDRO and file it with the court.
- Send a certified copy of the QDRO filed at court and signed by the judge to the plan administrator.
If you have questions about QDROs for spousal support or child support you should consult with your family law attorney or contact an attorney at QDRO Helper by calling 619-786-QDRO (7376).
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