What is an In Marriage QDRO?
For an overview of In Marriage QDROs and how this valuable resource can greatly benefit married couples in many different ways, watch Marcus Foote explain how he developed the concept during his recent appearance on “Total Retirement with Ernie Burns.”
A qualified domestic relations order (“QDRO”) is the legal document customarily used to divide qualified funds between divorcing spouses after a property settlement. An “In Marriage QDRO” used by Kuehne & Foote, APLC utilizes the same statutory authority to transfer funds between happily married spouses based on a variety of underlying transactions which are allowed during marriage. Under the right circumstances, a married couple can use an In Marriage QDRO to access funds from a qualified account and invest according to their financial objectives rather than being limited to the directives of financial plan administrators.
Why Hasn’t This Been Developed Before?
Most people have only heard of a QDRO in the context of a divorce. What many people do not know is that QDROs have a much wider scope of utilization. For example, a QDRO can be used for the payment of child support as well as spousal support. In New York, there have been cases where the court allowed funds from a QDRO to be used to pay attorneys’ fees in a child support arrearage case.
Additionally, QDROs often carry an aura of complexity. In fact, many family law attorneys do not prepare their own QDROs in fear of not applying the federal law correctly to state matrimonial regimes law.
Marcus Foote, a partner at Kuehne and Foote, APLC, has made a specialty in the research and preparation of QDROs. Much of his practice consists of consultations with other family law attorneys to negotiate and/or draft the QDROs in conjunction with a community property settlement. He constantly reviews the ERISA code sections defining the rules and regulations of a QDRO.
In August 2013, Marcus made an interesting discovery in his research. Although QDROs are most often used in conjunction with a divorce, he discovered that divorce is not a fundamental requirement for the document to be a QDRO. In fact, not only is divorce not a requirement, the word ‘divorce’ does not even appear in the entire QDRO statute of the ERISA code. Marcus’ continued research also found the following verification from the Department of Labor. In the DOL website Q&A section, the following question is asked:
- “Must a domestic relations order be issued as part of a divorce proceeding to be a QDRO?
- Answer – No. A domestic relations order that provides for child support or recognizes marital property rights may be a QDRO, without regard to the existence of a divorce proceeding?
Thus, if a divorce judgment is not required, then a happily married couple could utilize the same federal law and the same QDRO process to achieve the same results – moving funds from one spouse’s 401k to the other spouse’s IRA. Kuehne & Foote, APLC has worked for nearly a year vetting this innovative concept and call their result the “In Marriage QDRO.”
What Are the Potential Uses for In Marriage QDROs?
There are many innovative uses for this exciting new investment tool. Some of the most helpful uses include:
- Individuals who believe that a financial advisor’s guidance in an IRA can provide a better rate of return than that person’s 401k plan.
- Government employees, including teachers, who may wish to buy up to five years of “air time” service credit in order to retire at a younger age.
- Individuals who seek to obtain a cash payout from a 401k without paying the 10% early withdrawal penalty.
- Married couples who file separate tax returns.
- Wealthy couples who have entered into a premarital matrimonial agreement.
- First time homebuyers seeking to access 401k funds for a down payment.
- Parents who wish to use their 401k to fund their child’s college education.
- Parents who wish to set up a beneficiary trust for children with special needs.
- Individuals who may wish to invest in a Roth IRA instead of a 401K.