3 Tips for Avoiding Common QDRO Mistakes in an Illinois Divorce

 Posted on August 24,2020 in Division of Assets

A Qualified Domestic Relations Order (QDRO) is necessary when dividing retirement savings. Without it, the payee can be subject to tax penalties, and there is no guarantee that an employer or retirement plan provider will adhere to your divorce decree alone. Because QDROs are necessary so often, most retirement plan providers have standard forms to help you and your attorney create a draft. If you suspect that the division of retirement assets will be complicated, you can still draft your own QDRO. Either way, it is worth understanding some common mistakes people make when creating QDROs and how you can avoid them. Regardless of your situation, you should work with a reputable divorce attorney you trust to ensure that your financial interests are protected.

Typical QDRO Errors

Even though many retirement plan providers have boilerplate forms for you and your attorney to use as a reference when drafting your QDRO, there are still several common mistakes that you should avoid:

1. Misunderstanding the Type of Retirement Plan: Avoid submitting a QDRO to a judge for approval that just vaguely refers to “retirement plans.” Instead, be specific and consider the type of plan that you and your spouse are dividing. Most retirement plans are either classified as a defined contribution plan, a defined benefit plan, or a hybrid of both. In defined contribution plans, policyholders and potentially their employers make recurring payments into a retirement account, so it is simple to discover what the balance is at any given time. A defined benefit plan, like a pension, accrues value based on years of service the policyholder has at his or her job, so it can be tricky to calculate what those assets are worth.

2. Not Specifying Which Plans to Divide: A common tactic when drafting a QDRO is to state that “the husband’s retirement plan and the wife’s retirement plan shall be divided equally.” However, many people have several retirement accounts from different employers or just because they wanted to invest in several options. If you do not specify which accounts will be divided, you and your spouse might have a dispute in the future over which assets either of you has a claim over. 

3. Dividing Non-Divisible Plans: QDROs only apply to retirement plans covered by the Employee Retirement Income Security Act (ERISA) of 1974, which does not include most federal, state, and local government pension plans. There are other ways to divide non-ERISA plans, but a QDRO will not solve that problem for you. 

Contact a Naperville, IL Asset Division Lawyer

Dividing assets during a divorce can be difficult, and your attorney may need to use the help of an actuary to determine what your and your spouse’s assets are worth before proceeding. However, at Pesce Law Group, P.C., we have years of experience helping clients protect their financial interests when they and their spouse are separating. To learn more and schedule a free consultation with our skilled DuPage County divorce attorneys, call our office today at 630-352-2240.

Source:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-qdro-qualified-domestic-relations-order