Almost every divorce, whether the parties are low-net-worth or high-net-worth (HNW) individuals, involves dividing retirement assets. Failing to divide these retirement assets properly can result in significant, unanticipated, irreversible, negative downstream financial impacts. For this reason, most family law attorneys hire outside “QDRO counsel” to draft qualified domestic relations orders for their clients. This is a very specialized area of law that requires technical precision and more than a passing knowledge of this area of law. In addition, hiring and attorney who specializes in crafting QDRO’s is considerably less expensive than attempting to draft these orders in-house.
Retirement assets are classified as either qualified or non-qualified. Retirement plans that comply with the requirements and parameters of the federal Employee Retirement Income Security Act (ERISA) are considered qualified plans. Retirement plans that do not comport with ERISA are non-qualified plans. Some examples of non-qualified plans are individual retirement accounts (IRAs), stock option plans, deferred compensation plans, supplemental pension plans, and long-term incentive plans. ERISA-qualified plans include such plans as defined benefit plans (i.e., 401(k) plans), defined contribution plans, and many pension plans. The vast majority of all retirement plans are qualified plans.