A Qualified Domestic Relations Order (QDRO) is a critical legal document in many divorces in Minnesota. It allows the division of retirement assets between spouses as part of the divorce settlement. While QDROs provide an essential mechanism for the equitable division of retirement accounts, they do come with costs.
This raises the key question – who is responsible for paying QDRO fees in a Minnesota divorce?
In this blog post, we’ll provide clarity on QDROs – what they are, why they’re needed, how much they cost, and who typically pays the fees associated with obtaining a QDRO in a divorce.
What is a QDRO?
A QDRO is a specialized court order used to divide retirement accounts as part of the division of marital assets in a divorce. It serves as the legal authority for the administrator of the retirement plan to distribute a portion of the account to the non-participant spouse.
For example, if John has a 401k through his employer, a QDRO would allow a specific amount to be distributed from John’s 401k to his former spouse, Jane, as part of their divorce settlement. The QDRO provides the legal basis for this transfer to occur.
It’s important to note that a QDRO does not in itself divide the retirement account. First, the divorce decree must specify the division of assets, including retirement accounts. The QDRO implements what is outlined in the decree.
Key features of QDROs:
- A QDRO is issued as a court order signed by a judge.
- It allows retirement benefits to be paid directly to an alternate payee, usually the ex-spouse.
- It avoids early withdrawal penalties and tax implications that would occur without the QDRO.
- The alternate payee can transfer the funds into their own IRA account.
- It divides retirement assets that were accumulated during the marriage.
- It can also be used for child support and alimony payments.
Without a properly executed QDRO, taking a distribution from a retirement account would be considered an early withdrawal, incurring taxes and penalties. A QDRO provides an exemption from these consequences.
How Much Does a QDRO Cost?
The cost of obtaining a QDRO can range from $500 to $2,000 or more, depending on the complexity of the retirement plan and other factors.
Typical costs include:
- Attorney fees for drafting the QDRO: $500 – $1,500
- Plan administrator fees: $300 – $500 to review and process the QDRO
- Court filing fees: Approximately $300 to file the QDRO with the court
The main drivers of costs are the attorney time required to properly draft the QDRO and the administration fees charged by the retirement plan to implement the QDRO. More complex retirement plans, such as federal pensions, tend to have higher administration costs.
It’s advisable to clarify QDRO fees with your family law attorney and financial advisor early in the process. This allows both spouses to account for the costs in the overall divorce budget adequately.
Who Files a QDRO in a Divorce?
While both spouses are involved in the QDRO process, typically, it is the spouse who will be receiving a portion of the retirement benefits (the alternate payee) who initiates the QDRO filing. Here is a brief overview:
- The divorce decree specifies the division of retirement accounts.
- The alternate payee spouse engages their divorce attorney to draft the order.
- The drafted QDRO is submitted to the plan administrator for approval.
- Once approved, the QDRO is filed with the court and signed by the judge.
- The retirement plan administrator implements the QDRO by segregating funds.
The spouse who will receive benefits under the QDRO has a vested interest in ensuring it is completed accurately and timely. While input from both parties is needed, the alternate payee spouse often takes the lead.
How Does a QDRO Work?
A QDRO gives legal authority to the retirement plan administrator to distribute funds from the employee spouse’s account to the former spouse per the divorce decree, without tax penalties or early withdrawal fees.
Here is a quick 5-step overview of how a typical QDRO works:
- Divorce decree outlines asset division – This specifies the percentage or dollar amount of the retirement account the alternate payee will receive.
- QDRO is drafted – The attorney creates the court order according to plan requirements.
- Plan administrator approves QDRO – The administrator reviews the QDRO to ensure compliance with the retirement plan provisions.
- Court filing – Once approved, the QDRO is formally filed and signed by a judge.
- Administrator implements QDRO – The plan administrator segregates the alternate payee’s funds into a separate account.
The alternate payee can then move their portion tax-free into their own retirement account. While conceptually straightforward, the actual QDRO process can be complex depending on the plan. Professional guidance is key.
Steps for Filing a QDRO in Minnesota
Successfully filing a QDRO requires careful coordination between divorce attorneys, financial planners, the court, and the retirement plan administrator.
Here are the key steps:
- The divorce decree outlines the division of retirement benefits and is filed with the court.
- Your attorney works with a financial planner to draft the QDRO according to the terms of the decree and plan requirements.
- The draft QDRO is submitted to the plan administrator for review and preliminary approval.
- If approved, the QDRO is formally filed with the court and signed by the judge.
- The court-approved QDRO is sent to the plan administrator for implementation.
- The administrator sets up a separate account for the alternate payee spouse.
- Both spouses are notified once the segregated accounts are established.
- The alternate payee can roll over funds into their own IRA or other retirement account.
Proper coordination and attention to detail are vital for a smooth QDRO process. Your divorce attorney and financial advisor play key roles in successfully filing the QDRO.
What Happens if One Spouse Refuses to Pay Their Share of QDRO Fees?
Ideally, QDRO costs should be shared evenly between the spouses going through a divorce. However, disputes can arise if one spouse refuses to pay their rightful portion of QDRO expenses.
If you and your former spouse agreed to split QDRO costs 50/50, but now they are refusing to pay their share, you have options:
- File a motion with the court – You can file a formal motion asking the court to enforce the expense-sharing agreement. With evidence, the court can compel payment.
- Take funds from marital property division – If other financial assets are yet to be divided, funds can be deducted to cover the non-paying spouse’s share of QDRO fees.
- Subtract share of fees from retirement account – If needed as a last resort, the share of QDRO costs can be deducted from the non-paying spouse’s retirement account balance.
- Cover fees independently – If disputes drag on, you may choose to pay the full QDRO costs yourself to move the process forward.
No spouse should be forced to solely bear the cost of obtaining a QDRO that divides marital assets. Seeking guidance from an attorney can help enforce fee-sharing agreements.
The Importance of an Experienced Divorce Attorney
Drafting a QDRO is a detailed legal process, but it provides an essential pathway for the equitable division of retirement benefits in a Minnesota divorce.
Both spouses have a responsibility to contribute to the cost of obtaining a QDRO. With proper planning and legal guidance, QDRO fees can be managed appropriately.
If you are seeking clarity on QDRO costs or need assistance enforcing agreements, reach out to an experienced Minnesota divorce attorney. The team at Martine Law guides clients through all aspects of QDROs, ensuring a fair overall settlement. Contact us today to learn more.
