Common questions, straight answers

A defined benefit plan is an "investment in time" account — meaning the value of the account is dependent on how much time the employee spouse invested for that particular employer. When dividing these accounts pursuant to dissolution of marriage, one of the most common methods of division is a "fractional interest" division approach.

This approach is not applicable to all retirement plans, and your retirement plan may use a different method of valuing the accrued benefit (a "points" system, for example). Shared and separate interest division methods, depending on the benefit plan, may be mandatory or optional.

Yes, in most cases you can.

No. Pursuant to Internal Revenue Code §72(t)(2)(C), QDRO payments are an exception to the normal penalty rules.

Yes. You will have to pay ordinary taxes based on your own personal tax bracket. The plan administrator will withhold 20% of the funds payable to you for estimated taxes. Your actual taxes will be determined after you file your tax return — depending on your bracket, the 20% may be an overestimate or underestimate, resulting in a refund or additional tax liability.

Yes and no. You cannot "pay yourself" via the QDRO process. However, if your former spouse is cooperative, you can award your former spouse more than they are entitled to under the judgment, with an agreement that they return that money to you, less the applicable tax liability. Using this method, you can take money out and avoid the 10% penalty.

One caution: this arrangement depends entirely on cooperation. ERISA's anti-alienation rules mean that if your former spouse breaks the agreement — say, by rolling the funds into an IRA instead of returning them — recovering the money involves real hurdles. The tax allocation between the parties also takes careful handling. Get advice before using this strategy.

Yes and no. Payment from a retirement plan can only be issued to a qualified alternate payee — a spouse, former spouse, child, or qualified dependent of the account holder. Attorneys do not fall into any of these categories. From a practical standpoint, after the alternate payee receives their funds, those funds can be turned over to anyone, including their family law attorney for fees. But that agreement cannot be written into the QDRO document itself.

No. Pursuant to Internal Revenue Code §72(t)(3), the QDRO tax exception does not apply to IRA accounts. Talk to your CPA to find out if other exceptions apply, such as the first-time homebuyer or higher-education expense exceptions.

The QDRO/DRO process typically takes between 6 and 7 months, though it can be shorter or longer depending on the cooperation of the parties, the efficiency of your courthouse, and the plan administrator. Roughly: 2–4 weeks to draft (once we have the requested information), 2–4 months for plan administrator pre-approval, 1–2 weeks for signatures, 1–2 months for the court, and 1–2 months for the plan to process the final order.

Most parties cooperate. When one doesn't, in some cases the QDRO/DRO can be filed anyway with a declaration describing efforts to work with the difficult party. Some judges require a fully noticed motion instead — meaning a return to court. We'll discuss the options and costs if it becomes necessary.

Neither side's — and that's the point. We think of this work as judgment enforcement: our marching orders come from your judgment, and when the judgment is clear there is only one right way to write the order. When it's ambiguous, we lay out the reasonable interpretations and ask both parties to agree to one. If there's a genuine dispute we can't paper over, we suspend the file while you resolve it through the proper channel, then finish the order at no additional charge. Taking advantage of drafting mistakes to favor whoever hired us first would be a fast way to lose the trust this practice is built on.

Yes — and in most plans it's straightforward: the plan will let the party receiving funds under a QDRO cash out part of their share and directly roll over the rest into a tax-deferred account, such as a traditional IRA, in one transaction.

Some plans, however, only allow an all-or-nothing election — a full cash-out or a full rollover. That's where the 60-day rule comes in: you can take the full distribution and then roll over the portion you want to keep tax-deferred within 60 days. That 60-day deadline is a hard IRS rule — consult a financial advisor and have your receiving accounts lined up before you start.

Attorney Ruegg is an attorney, not a financial advisor. You should seek advice from a financial professional before deciding what to do with your money. If you do not already have a financial advisor, you can ask us for a referral.