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The parties to a Texas divorce case must identify all of the community and separate property that they own. A final decree of divorce must include a plan for dividing the community property between the parties. The parties can agree on how to do this — and courts in Texas are happy when they do — or they can ask the court to rule on property division after a trial. Different types of property require different kinds of paperwork. Most people are familiar with the paperwork required to transfer title to a house or a car, but other assets require specialized documents. Retirement and pension plans often require a specific type of order from the court, known as a qualified domestic relations order (QDRO, pronounced “QUA-dro”). Drafting a QDRO requires knowledge of Texas family law, state and federal laws governing employment benefits, and the requirements of specific retirement or pension plans.
A QDRO is a court order that orders the division of all or part of a retirement or pension plan between an employee and one or more “alternate payees,” who could be the soon-to-be-ex-spouse, the parties’ child or children, other dependents, or a combination of any of the above. The term “qualified” refers to standards established by the Internal Revenue Code (IRC). A “qualified pension” under the IRC does not allow assignment of benefits to a third party except in specific situations, including a division in a divorce or other family law proceeding. A QDRO therefore assigns the right to a portion of benefits to one or more alternate payees.
The order could be incorporated into the divorce decree, or it could be a separate order signed by a judge alongside the decree. Separating the QDRO from the rest of the divorce decree is often the more efficient choice, but it could depend on what the plan administrator requires. Unlike most legal documents in a divorce, a QDRO must meet with the approval of both the judge and the plan administrator.
Retirement or pension plans that are subject to the Employee Retirement Income Security Act (ERISA) of 1974 require a QDRO that meets the IRC’s definition. ERISA is a federal statute that governs retirement and pension plans offered by private employers. It does not require employers to provide any particular benefits for their employees. If employers do provide benefits, the statute regulates the administration of those benefits. ERISA covers most retirement and pension plans sponsored by private employers, including different types of individual retirement accounts (IRAs) and 401(k) plans.
ERISA does not cover plans provided by government employers, such as state or federal employee pensions and military retirement benefits. Other statutes govern these plans, and may provide their own instructions on how to divide benefits in a divorce. This varies greatly among jurisdictions.
The Employees Retirement System of Texas (ERS) and the Texas County & District Retirement System (TCDRS), use QDROs, even though they are not governed by ERISA. They use a definition of QDRO found in the Texas Government Code, which is very similar to the IRC’s definition.
Federal retirement plans do not use QDROs. The Uniformed Services Former Spouses' Protection Act governs the division of military retirement pay in a divorce. It allows state courts to order the division of federal military benefits, but does not require the same type of order as ERISA and the IRC. Plans offered under civilian programs like the Federal Employees Retirement System (FERS) use a document known as a Court Order Acceptable for Processing (COAP), which is similar to a QDRO.
As mentioned earlier, QDROs are only required for employer-sponsored retirement and pension plans governed by ERISA. The IRC also applies, since these plans receive favorable tax treatment in various forms. Other financial accounts that could provide retirement benefits typically do not require QDROs.
The IRC provides several specific requirements for QDROs:
Part of a plan’s value could be separate property, such as when the employee’s participation in the plan pre-dates the parties’ marriage. A QDRO is not required to identify how much of the plan’s value is community property. It is only required to state how much of the plan’s value is to be distributed to the alternate payee(s). For example, if a retirement plan is half separate and half community property, and the non-participant spouse, as alternate payee, will receive half of the value of the community property portion, the QDRO only needs to direct the plan administrator to pay the alternate payee one-fourth of the value during the period of time the parties were married. Each plan administrator may have their own standards regarding how the order describes the division of benefits.
Retirement and pension plan administrators may have their own unique requirements for QDROs. Some plans make suitable QDRO forms available, while others give notice of what an order should say or how it should be formatted. It may be possible to get pre-approval of the form of a QDRO from a plan administrator, even before the parties to a divorce have reached a settlement agreement or gone to trial.
The judge presiding over the divorce should sign the final QDRO, ideally at the same time as the divorce decree. Then, the plan administrator must review the signed order. Hopefully, they have already approved the form, and can prepare the division of the plan. If they are not satisfied with the order, the parties might be able to appeal to the administrator’s superiors. Otherwise, they must revise the order and go back to the judge. Pre-approval is therefore a prudent tactic.
Stacey Valdez is a board-certified family attorney in Houston, Texas. As a client of Stacey Valdez & Associates, you can rest assured that you and your family will be a top priority for our firm. Divorce, child custody, and other family law disputes are among the most difficult ordeals many people face, and we are committed to helping our clients through it with compassion, support, and tireless advocacy. Please contact us today online, or give us a call at (713) 294-7072 to schedule a confidential consultation to discuss your case. Your first meeting with us is free in most situations.