How Long Does It Take To Receive Funds From a QDRO

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.

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.

Dividing and transferring funds from a 401(k) after a divorce can take from a couple of weeks to several years depending on the complexity of the transaction and the administrator. All paperwork has to be properly filed and processed, meaning it’s important to be patient.

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 The non-participant spouse could be entitled to part of the withdrawn money and claim it retroactively.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.

Common Challenges in the QDRO Process

Procrastination in Addressing the QDRO

Addressing a QDRO is a time-sensitive matter, one that should be brought up during the divorce process and not after. Delaying the conversation can result in penalties, such as unexpected taxation or withdrawal complications. If the participant has retired and already started receiving payments from the QDRO, or has taken out loans against retirement accounts, you could have a problem. Ensure your QDRO is drafted and approved alongside your divorce decree to avoid these issues.

Not Clearly Specifying the Amount or Percentage

Ambiguity is a recipe for disaster and confusion, not to mention potential litigation. Specificity is your friend, especially when it comes to detailing the amount or percentage of a participant’s QDRO benefits and those to which the alternate payee is entitled.

Failing to Recognize Different Types of Retirement Plans

Not all retirement plans are the same, it’s important to recognize how impactful differences can be. For example, 401(k)s and traditional pensions belong to different types of Contribution and Benefit plans. These types have their own specific considerations and requirements in how they affect a QDRO, and understanding the importance of these distinctions is paramount to the process.

Overlooking Loan Balances on the Plan

It’s important to address whether or not the participant has taken out a loan against the retirement plan. This is an essential part of how the loan balances will affect the division of assets; ignoring this aspect can have negative results, such as the alternate payee receiving less than expected from the QDRO.

Failing to Consider Potential Tax Consequences

If you withdraw from a retirement plan early, you can be subject to taxes and penalties if you do so before the specified age(s). Read through the QDRO stipulations and ensure that the language specifies who is responsible for taxes upon disbursement—whether that is the participant, or the alternate payee.

Omitting Survivorship Provisions

Creating a clear survivorship pension ensures that, should the participant die before their ex-spouse can start receiving benefits, the alternate payee remains protected during the process.

Drafting Without Expertise

Drafting a QDRO requires specialized knowledge that goes beyond generic online templates or independent drafting. Working with a professional is the only way to ensure the QDRO is drafted correctly, as some laws and stipulations vary from state to state. The person you hire must know the regulations and nuances of retirement benefits.

Failing to Follow Up with the Plan Administrator

It is essential to submit the QDRO to the retirement plan’s administrator once it has been drafted and approved by the court. This process of approval and implementation is a necessary step, and neglecting it could mean the order is unenforceable. Failure to submit could result in these retirement assets not being divided.

Not Addressing Potential Disputes

A comprehensive QDRO can address all potential disputes, including pension adjustment for the rising cost of living expenses, any survivor benefits, and market fluctuations before division and distribution. Ensuring clarity in these areas prevents future conflicts and can make QDRO distribution much easier.

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FAQs About QDROs

Does a QDRO Apply to All Retirement Plans?

A QDRO applies to the company retirement plan specifically, such as a 401(k), 403(b), and other similar plans. Your QDRO does not apply to an IRA, and while there are exceptions to every rule, it’s best to retain knowledgeable tax advice from a QDRO lawyer prior to any distribution considering the potential tax consequences of the division.

What Happens if a QDRO is Not Filed?

You may lose valuable rights and risk forfeiting your awarded benefits if you delay obtaining a QDRO. If your former spouse undergoes any major life changes before the QDRO is submitted to the pension plan, you could also lose your rights.

Any of the following could affect the distribution of assets as the alternate payee:

  • Retirement
  • A new marriage
  • Death
  • Loss of employment
  • Funds withdrawn from the Plan prior to retirement
  • A secured loan is taken out of the Plan account

Can a QDRO Affect the Amount of Retirement Benefit Received?

The plan under a QDRO gives the ex-spouse, or alternate payee, the right to a percentage of the retirement benefits that the participant (former spouse) earned through their company retirement plan.

For example, a QDRO might pay a percentage of the account value that’s grown during the marriage. Those funds can be transferred into an IRA for the beneficiary spouse, and a QDRO benefits the alternate payee of a living ex-spouse, but they can also be awarded survivor benefits upon death.

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.

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Jarrod Hays is the founder of Skyview Law. He is licensed to practice law in Washington State and the Western District of Washington State Federal Court.

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