To move certain retirement assets from one spouse to another as part of a divorce in New Jersey, a Qualified Domestic Relations Order, or “QDRO” for short, is often needed. This is an unnecessarily complicated process, and it can be confusing and daunting for many people. This video explains what the process is, how it works, and what you should expect.

The following is a transcript of the above video:

“Hi, everybody. Nice to see you. Today’s topic is qualified domestic relations orders, or as we like to call, them more commonly, QDROs. We’re going to talk about what they are and why they’re needed. And what you’re going to see is that this is a sort of thing that is more complicated really than it needs to be. So here’s the simple explanation of what it is.

In a typical divorce, you have to divide up assets. That’s no secret. And a lot of times those assets are financial. And if you have something like a bank account, you just divide it. You take the marital portion and person A gives the other portion to person B. And that’s it. It’s very simple. Okay. But there are some retirement assets that you can’t just do that with. An IRA, for example, you can. A 401k, you can’t. You should be able to, right?

There’s no reason you shouldn’t, but you require what’s called a qualified domestic relations order in order to do that. A lot of pensions are the same way. All right. And what a qualified domestic relations order is, is it’s actually an order that is signed by the judge after the divorce that instructs the plan administrator how to divide the assets. So what’s typically going to happen in this situation is you’re going to go through your divorce process. 98% of the time we know from statistics, it’s going to end with a marital settlement agreement. And that marital settlement agreement will explain how your very assets are going to be divided, including your retirement assets. In the 2% of the cases where there’s not a marital settlement agreement, that’s because the case went to trial and the judge will just issue a ruling, a judgment on what should happen, which will serve the same purpose as the marital settlement agreement.

And when you’re drafting that, you have to be pretty specific about what you’re dividing. You’re going to need the plan names. You’re going to need the account numbers and things like that, because what’s going to have to happen is once you’re divorced, you now take your marital settlement agreement, not to the plan administrator or anything like that. First, you’re going to go to a third party company like Troyan and they’re going to work with the plan administrator, whoever administers the 401k, whoever administers the pension to create the qualified domestic relations order. And each one of these different plans operates differently. They all have different language they want seen in it. And so the third party that you’re going to hire out through your attorney is going to work with the plan administrator to get that language right. They’re then going to present the draft of the qualified domestic relations order to you and your attorney to look over, to make sure it’s consistent with the marital settlement agreement or judgment.

Once everybody signs off on it, it gets then sent not to the plan administrator. It gets sent to the judge and the judge has to review it. And the judge signs it. He sends it back to the attorneys who sends it to the third party, who then send it to the plan administrator. And the plan administrator then takes it and divides the asset in accordance with the order. And if it’s a company, for example, like I think TD Ameritrade, let’s use as an example. If I have money in a TD Ameritrade account and my spouse who I’m divorcing, which I’m not, but I’m using this as an example. If my spouse who I’m divorcing is entitled to some of it, TD Ameritrade will then create a separate account for that person within TD Ameritrade. And that person can then do whatever they want with it. Every now and then, you’ll get a plan administrator that does this the most backwards way you can imagine where they won’t even approve the qualified domestic relations order ahead of time. You have to first draft it on your own. \.

Then go to a judge, the judge signs it. You send it to the plan administrator. And then they say, okay, well, here’s, what’s wrong about it. Now, we need these changed. In which case, now you have to do the whole thing over again, you change it. You send it to the judge a second time. The judge now has to sign it a second time. We send it back to these guys. In case, you have not figured it out yet, this is one of these things that should be very simple and is made unnecessarily complicated as I said.

There are certain things in a divorce that you can do on your own. This is not one of them. And there’s sort of an unfairness to this because when you get divorced, you want to think, okay, I’m done, right? That’s it. But it’s like, no, if you still have this thing hanging over your head, you still have to get this part done. And it’s going to take some time. I mean, the quickest I’ve ever seen one accomplish, I think was about a month. And that’s because we had to put a rush on it. You’re going to be dealing a lot with plan administrators and their personnel who don’t get back to you. You’re going to be emailing people and calling people. And this one doesn’t know what the other one’s doing. And what should be simple can get out of hand very quickly, unfortunately, but in the end, the money will go where it needs to go. So that in short is what a QDRO is.

Now I’ve had people tell me they want to see ahead of time what the QDRO looks like before they sign off on the divorce. And that’s just not how it happens. What you can do is working with the QDRO company, you can see how much money you’re going to get, or how much money you’re going to lose, including with defined benefit pensions. Those are the pensions where, for example, you don’t have a lump sum of money. Just when one party turns a certain age, they’ll start getting monthly payments, for example. Well, you can work with the QDRO company to figure out what the present day value of that really is, and then go from there. But what you’re not going to do is you don’t draw the QDRO up ahead of time. And then from there, show it to the client, ask his approval and then decide if you’re going to get divorced or not, or what the divorce is going to look like.

It all has to happen afterwards. It is sort of a weird process, right? You think everything happens and then you get divorced, but this is the case where you get divorced and then other things have to happen, which is kind of weird. So that’s the short explanation of what it is. Not all retirement plans, by the way, have to be divided like that. IRAs, for example, you can just move from one person to the other. But if you’re talking about things like 401ks, defined benefit pension, stuff like that, that’s going to need a QDRO. Sorry for that lengthy explanation. If you need help with something like this, or if you’re facing something like this, please give me a call. I’d be happy to give you a consultation and figure out what I can do for you. All right, guys. Thanks for watching and take care.”