What is a domestic relations order (DRO)? Example & How It’s Used

Summary:

A Domestic Relations Order (DRO) is a court-issued directive that enables a spouse or dependent to claim a portion of an employee’s qualified retirement plan following a divorce. This article delves into the significance of a DRO, its relationship with Qualified Domestic Relations Orders (QDROs), the regulations concerning public employees, plan administrator reviews, processing times, and the distinctions between private and government retirement plans. Understanding the legal intricacies and implications of a DRO is pivotal for individuals involved in divorce proceedings or seeking entitlement to retirement benefits post-divorce.

What is a domestic relations order (DRO)?

A Domestic Relations Order (DRO) is a legally binding document issued by a court that grants a spouse or dependent the right to claim a share of an employee’s qualified retirement plan in the event of divorce or legal separation.

Qualified domestic relations order (QDRO)

An approved DRO that meets specific legal requirements under federal laws is termed a Qualified Domestic Relations Order (QDRO). This order is essential for the equitable distribution of benefits from qualified retirement plans.

Regulations for public employees

The Retirement Equity Act (REA) of 1984, operating under the Employee Retirement Income Security Act (ERISA), stipulates that the retirement benefit plan of a public employee is considered an asset for both the employee and their alternative payee. An alternate payee, recognized by the IRS, could be the spouse, ex-spouse, or dependent of the employee.

Plan administrator review

Employers or plan administrators are responsible for evaluating a DRO’s validity. They scrutinize the order to ensure it aligns with federal laws and the requirements of the retirement plan. If an order does not comply, it’s returned to the attorney representing the beneficiary for modifications.

DRO processing times

The duration to process benefits post-divorce varies based on the retirement plan type and the court’s judgment. For qualified defined benefit plans, the alternate payee might not receive payouts until the employee retires. Conversely, some plans permit immediate payments to the alternate payee.

Private vs. government retirement plans

While private retirement plans adhere to ERISA regulations, government retirement benefits, including those from the state, military, federal government, county, or city, are not bound by ERISA. Government plans divide retirement benefits exclusively via a DRO.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros
  • Enables fair division of retirement benefits
  • Provides financial security for ex-spouses or dependents
  • Utilizes a legal framework for equitable distribution
Cons
  • Complex legal procedures and potential delays
  • Dependence on plan administrator or employer compliance
  • May incur additional legal expenses

Frequently asked questions

What’s the significance of a Qualified Domestic Relations Order (QDRO)?

A QDRO ensures compliance with federal laws for the equitable distribution of retirement benefits following a divorce.

Can DROs be challenged in court?

Yes, if a DRO is erroneously judged as qualified, it can be contested in court for correction or amendment.

Do all retirement plans fall under the purview of a DRO?

No, while private plans abide by ERISA regulations, government retirement benefits are solely divided via a DRO and are not bound by ERISA laws.

Key takeaways

  • A Domestic Relations Order (DRO) allows the division of retirement benefits post-divorce.
  • A Qualified Domestic Relations Order (QDRO) is crucial for compliance with federal laws.
  • Government retirement benefits are not governed by ERISA laws.
  • Processing times for benefits vary based on retirement plan types and court judgments.
View Article Sources
  1. Domestic Relations Order (DRO) Fact Sheet – University of California
  2. What Is a TRS Model Domestic Relations Order (DRO)? – Teacher Retirement System of Texas
  3. Domestic Relations Order (DRO) – Connecticut
  4. Divorce Law – SuperMoney