How QDROs Can Be Used To Collect Child Support
When you get divorced there are all kinds of hurdles to overcome for both spouses. The hardest by far, however, is not going to be the division of house, property or assets—it’s going to be custody of the children, and the agreement for child support. This becomes particularly difficult when the party responsible for paying child support is negligent on their installments, be it deliberately or not. When child support is seriously past due it can seem like a nightmare to collect.
What is a QDRO?
What many people don’t know is that it is possible to collect child support from an agreement that allows one partner to give a portion of his business’ employee pension to an ex-spouse who is not an employee. In essence, one spouse agrees to give a portion of their retirement benefits to the other spouse after finalizing a divorce. This agreement is called a Qualified Domestic Relations Order, or QDRO.
QDROs and Child Support
Usually these programs, as you might guess, are designed to create a retirement fund for an ex-spouse. However, there are ways in many jurisdictions that the QDRO can be leveraged to tap into retirement funds for recovery of unpaid child support. 30 years ago, Congress passed the Retirement Equity Act of 1984 whose purpose was to improve the protection granted to the spouse and dependent children after a divorce. This act clarified that any domestic relations order (such as a QDRO) which “creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan” could enable the recovery of child support or alimony payments.
Pennsylvania courts have specifically enacted judicial sanction to support this idea.
Since most retirement plans such as 401k or 403b plans fall under federal jurisdiction, it doesn’t even matter if the plan in question is from out of state—it can still be leveraged to collect the past due child support payment without a great deal of difficulty. Even better, the taxes that result from early withdrawal from these plans fall upon the plan participant and not the parent with custody. This means that should you need to tap into your ex-spouse’s 401k using a QDRO, you won’t have to pay the tax on the funds—they will, unless your QDRO agreement states otherwise.
How It Works
How this is done is fairly straightforward:
- First you will need to obtain a judgment from the court that entitles you to the amount of past due support. This judgment will allow review of your ex-spouse’s financial records and plan documents, which will determine how much can be withdrawn from their retirement plan through the QDRO. The QDRO is a necessary step here because the IRS views it as the only allowable means to separate the retirement benefits from the plan participant (your ex).
- You, as the custodial parent, will then be set up as the beneficiary of the amount you are owed. This will ensure that you still receive payment should your ex die before retirement age.
You should be aware, however, of a few complications that could arise.
- Not all retirement plans allow for an immediate payment of the full amount you are owed, and not all plans can be leveraged through division by a QDRO. Municipal plans and 457 deferred compensation plans, for example, are not subject to QDRO division. However, plans like this will sometimes allow for direct income deduction to gradually pay off the debt.
- In some cases, the QDRO will help you regain the money, but only after your ex has reached a certain minimum retirement age. A good example of this kind of repayment is when a QDRO is used to leverage a pension plan for payment of past due support, by comparing what you are owed against what pension benefits have presumably accrued based on how long your ex-spouse has been accumulating the benefits. In this case, the benefits will be paid in the future at the ex-spouse’s earliest retirement age. In this sense, the money is like paying back a debt for having raised the child, even if the child has reached adulthood by the time the plan participant reaches retirement age.
If you are going through a divorce, it is important to note that your spouse’s retirement funds are an asset that can be divided as part of the settlement, through a QDRO, and doing so may save you a lot of grief should you need to tap into those funds to recover errant child support that you are owed.