The use of a Qualified Domestic Relations Order (“QDRO”) is an often overlooked tool for assisting family law attorneys and divorcing spouses with the collection of child support or spousal support.
A QDRO can be used against a defined benefit plan (which pays monthly benefits over a participant’s lifetime) to collect ongoing monthly child support or spousal support. The participant must be in pay status in order for the defined benefit plan to be able to pay the monthly amount.
In other words, if the participant is not yet retired, the benefits will likely not be payable from the Plan under a child support or spousal support QDRO. Certain exceptions apply.
A QDRO can be used for a defined contribution plan (which has a current account balance) for the collection of spousal support or child support in a lump sum, such as arrears.
The authority for this collection activity resides in ERISA which provides that a QDRO can alienate benefits of the participant if it relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent and is made pursuant to a state domestic relations law. (29 U.S.C. § 1056(d)(3) (B)(ii)(I) and (II)).
Finally, it is important to note that child support QDROs and spousal support QDROs are somewhat specialized with regard to the tax consequences. Child support payments from a retirement plan are taxed to the participant, not the alternate payee.