If you are recently divorced or in the process of getting a divorce, you might be counting on a portion of your ex-spouse’s retirement funds to help with necessary expenses or to fund your retirement. This article will give you an idea of how long it will take to receive your share of your ex-spouse’s retirement benefits.
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How Long Does It Take to Receive Funds From QDRO
The time it takes to receive funds from a QDRO (qualified domestic relations order) can vary widely based on several factors. You can typically expect the entire process to take between six and eight months, but it can be as fast as two months or take as long as two years or more.
If your divorce lawyer has done most of the steps necessary to draft your QDRO the process will likely take three months at the most. If your divorce is final and you have an agreement with detailed and well-crafted language, your QDRO process should be relatively quick.
Once the QDRO process is complete, you will have access to your portion of the QDRO funds within a few weeks. In some cases, you may be able to access your funds instantly once the QDRO is finalized.
First, How Long After a Divorce Can You File a QDRO?
The good news is that it is never too late to file a QDRO. However, you should file a QDRO as soon as you can.
Many people wait too long to begin their QDRO process, sometimes mistakenly believing that the divorce needs to be final before a QDRO can be issued. However, you can file a QDRO anytime according to ERISA’s rules. The QDRO process tends to be a lot faster if you begin before your divorce is final.
If you fail to get a QDRO promptly, the ex-spouse participating in the retirement plan could retire and begin withdrawing from the account. The non-participant spouse could be entitled to part of the withdrawn money and claim it retroactively.
Now, Onto the QDRO Process
The first person’s approval you will want when a QDRO is drafted is that of your former spouse. The QDRO should reflect the conditions of the separation agreement, so it shouldn’t come as a surprise to your ex-spouse. However, if your former spouse is uncooperative, it is not necessary to have them sign the QDRO at this point.
Next, the QDRO will be sent to the plan administrator, who will likely suggest edits. The plan administrator will require that the QDRO use specific language, so the wording of the document is usually what needs to be changed rather than the dollar amounts.
After the QDRO has been pre-approved by the plan administrator, you and your ex-spouse will need to sign the document. Should your ex-spouse refuse to sign, you can file a motion requesting a court clerk to sign on behalf of your former spouse.
After the QDRO is pre-approved and signed, you can submit it to the court for the judge’s approval. You will need to file your QDRO with the court that has jurisdiction over your divorce. Once the judge signs the QDRO, a certified copy will be sent to your plan administrator. Courts are notoriously slow, so your QDRO might take more time than expected even if the rest of the process goes smoothly.
How Long Does It Take to Process a QDRO?
Several processes need to take place for a QDRO to be finalized. An order needs to be drafted based on the separation agreement, and you will need the approval of your ex-spouse and their attorney. If your spouse is cooperative, this should not take long, but an uncooperative ex-spouse will prolong the process.
Next, you will need to obtain the retirement plan information necessary to draft the QDRO.
The order will need to be submitted to a court for approval and then to the clerk for filing. You must then obtain a certified copy of the signed and filed order. Depending on the court, this legal process may take one to three separate steps.
Finally, the plan administrator needs to deem the order qualified, which will end the QDRO process.
How Long Does It Take to Get Approvals?
The QDRO process requires approvals from the couple, the lawyers, the judge, and the plan administrator.
First, the couple and their lawyers review the QDRO. So long as the QDRO follows the terms of the separation agreement, this approval should not take long at all.
Next, the QDRO is submitted to the plan administrator for pre-approval. If the QDRO is well-worded and specific, this approval shouldn’t take long either, but each plan requires specific wording so the plan administrator will likely require some edits.
The approval that will likely take the longest is the judge’s approval. You can always expect delays, particularly if you live in a metropolitan area. If you live in a more rural area, you could manage to have a quick turnaround with the courts, but these occurrences are rare.
Can I Receive Money From a QDRO Immediately?
So, can money received from a QDRO be received immediately? Most retirement funds will transfer the QDRO funds into the alternate payee’s account within weeks after the final approval of the document. An IRA, 401(k), 457, 403(b), or similar plan will typically transfer the funds within three to five weeks.
QDRO and Payments
There are several options for how the alternate payee can choose to receive their QDRO payment.
One option is to receive one lump sum payment of a percentage of the assets in the account. This amount is rolled over into the alternate payee’s account. If the account is a non-IRA account, then the alternate payee is responsible for paying income taxes on the amount.
Another payment option is to receive the allocated amount spread out in installments over a set period of time.
A third option available from some plans is to leave the money in the ex-spouse’s plan but allow the alternate payee to invest their portion.
Benefits of QDROs
The IRS generally charges a 10% tax penalty on funds withdrawn from a retirement account before the participant is 59 ½ years old. One benefit to withdrawing funds from a QDRO is that the IRS may waive this penalty.
Taxes on QDROs
If the alternate payee wants to defer all taxes from the QDRO funds, they can roll the entire amount into their separate retirement account. However, if the alternate payee withdraws the money, your plan will automatically withhold a 20% federal income tax.
Although you may be able to defer all taxes, you’ll have to pay QDRO fees such as drafting fees and lawyer fees.
How Long Does It Take to Receive Funds From a QDRO?
While the length of the entire QDRO process can vary widely due to numerous factors, once the QDRO is finalized you should be able to access your portion of the funds quickly. You may be able to access the funds immediately after your QDRO is approved, and in most cases, the funds are available within a few weeks.
