When a 401(k) plan or pension is going to be divided in a divorce, it requires a court order to do so. In the private sector, this document is called a Qualified Domestic Relations Order, or “QDRO” and that term is often generically used to describe these types of court orders. However, federal plans (FERS and CSRS) require a “Court Order Acceptable for Processing” and a military pension requires a require a “Military Pension Division Order”. Getting the name right is only the start. Understanding the differences in these plans and getting it right (or wrong) can mean thousands of dollars in favor of one party or the other.
The biggest error made when there needs to be a QDRO is not getting the plan documents and understanding the terms of the plan with regard to survivor benefits, COLAs, separate accounts, early retirement and also improperly valuing the marital portion of the benefit. These have less to do with the physical preparation of the QDRO as they have to do with correctly and thoroughly writing up the terms of the pension division in the settlement agreement, so they can then be written up in the QDRO. A QDRO preparer cannot write in terms after the fact that were not specified in the settlement agreement. That is where the expertise of a CDFA, and an experienced QDRO preparer come in. You don’t know what you don’t know until it bites you. Dividing a pension is complex, and it requires financial expertise, time and attention during the settlement process.