After waiting for your divorce judgment to be finalized, nobody wants to wait for the QDRO to be done, especially when it seems like it could be as simple as withdrawing money from a bank account. Unfortunately, it is not that simple. If you take money out of the account early without a QDRO, you will usually have to pay taxes and penalties right away.
Assuming you do decide to proceed with the QDRO, you do need to be prepared to wait. But how long will you wait? The short answer is this: if everything goes right, you may have to wait a few months for a 401(k) to be split properly. And for a pension, if the employee spouse (also known as the plan participant) has not yet retired, you may have to wait until retirement (or at least until retirement age) before you can start to get monthly payments. But as always, every plan and divorce is different, so discuss your situation with an attorney before making any assumptions.
And for the longer, more detailed answer, let’s go through the steps of a QDRO to give you an idea of how long it will take to get paid:
Drafting the QDRO: Two Weeks
The actual drafting of the QDRO might be the shortest part — assuming you give the person drafting the order everything they need to get it done. Most of the time, delays in this process are because not enough information is available. For example, many times pages are missing from the divorce agreement. Or, the divorce agreement does not clearly delineate who gets what with regard to retirement accounts. The QDRO attorney or person preparing your order isn’t to blame here — they have to work with what they can get from you and your divorce attorney.
Assuming the QDRO preparer has everything they need, and if your divorce agreement was clear enough, drafting the order can take an hour or less. The QDRO preparer will review your divorce documents to see how the account should be split, then write the QDRO along those lines — most of the time we are merely executing whatever was already agreed to in your divorce.
Sometimes, especially for government plans, church plans, or union plans, custom language unique to that plan must be put into order. When this happens, it will take time to reach out to the plan administrator and gather the necessary information to draft this first draft in a way in which the plan will actually accept it.
Pre-Approval: A Month
Once we have a rough draft in hand, most of the time, your QDRO preparer will submit the draft to the retirement plan for “pre-approval.” This means the plan administrator reviews the language of the order and lets us know whether it is something they can carry out if everyone were to sign. The reason we do this is that it avoids the very frustrating situation of having everyone sign a document, including the judge, and in the QDRO plan administrator saying, “nope, can’t execute this, do it again.” The law gives that plan administrator a lot of leeway in interpreting the orders, so you will want to do a pre-approval to make sure that you don’t waste time and to make sure that their interpretation is in line with what your divorce called for.
It is very common for the plan administrator to send a letter to the person who is making your QDRO asking for clarification or changes. This is a collaborative process, and you should think of these early drafts as just that: rough drafts that need editing.
Review by Parties and Signatures: A Month
Once a pre-approved draft is ready, both ex-spouses should review the QDRO and ask as many questions as they need to feel comfortable with what the language in the document means. Obviously, nobody is happy about signing off a part of the retirement account, but it is the job of the QDRO attorney to write an order that reflects whatever was in the divorce — not to make things up, or to favor one party or the other, but to draft something fair and in accordance with the divorce.
Once both parties have reviewed the document and are comfortable with the language, they can sign. In some states, such as New Jersey, it is advisable to sign in front of a notary. And in some states, electronic signatures are acceptable, while in other states you will need inked signatures. In places like California, which is an utter madhouse, some counties will allow electronic signatures while others don’t allow electronic signatures or electronic filing – it is a state by state, county by county, and sometimes judge by judge process. To ensure that the court will take your order, the safest thing to do is to have both parties and their attorneys sign, with the parties signatures notarized.
Filing With The Court: Six Weeks
Once the parties have signed, the order needs to be filed with the court. Depending on your local rules, this may be an electronic filing. And in many cases, assuming both parties have signed, the court will not require a hearing or anyone to show up at court — it is a rubber stamp process. However, if one party refuses to sign, or if your local rules or judge require it, you may have to show up to court and discuss the order with the judge.
Get Certified Copies to The Plan: A Month
Once the judge has signed, it will be entered by the clerk and become official. In some places, such as New York City, it can take a few days for the clerk to enter the order into the record. Once it has been entered, you need to obtain copies of the signed order and send those to the retirement plan. The safest route is to obtain certified copies, which typically have some sort of seal or stamp that says that they are official copies — though increasingly, due to electronic filing, many plans have backed down from this requirement and you can email over a copy of the order.
Fill out any distribution paperwork: While Waiting On Court
Most deferred compensation (cash and investment) accounts will have special paperwork for the non-employee spouse that allows them to tell the plan what they want to do with their share of the money. This would typically be a one-page form that gives options like “rolled over to another retirement account,” “open a new account at the same financial institution as the employee’s spouse,” or “cash it out and send me a check.”
Sometimes, the plan administrator will also require the employee’s spouse to fill out a similar form. It’s redundant, but it’s easiest to play by the plan administrator’s rules. After all, remember that your QDRO probably says something along the lines of “plan terms control,” and “the parties will cooperate and sign whatever is necessary to carry out the order.”
Get Paid: 30 to 90 Days
For deferred compensation accounts (cash and investment accounts like 401(k), 457, etc.), this is the point where you can get paid. The nonemployee spouse can be issued a check and they will be responsible for income tax, but should not have to pay any early withdrawal penalties, as there is an exemption to the early withdrawal penalty rules for QDROs.
If this is a pension plan, most plans will not pay anyone at this point. Both parties will have to wait until the employee’s spouse has reached retirement eligibility age or service time. In some states, and with some plans, the non-employee spouse will even have to wait until the employee’s spouse actually retires — even if that means they are working a few years beyond retirement age. For those seeking lump sums from pensions (an immediate payout today), this is typically not available. However, it cannot hurt to ask the retirement plan if this is an option — some will provide this option for smaller amounts so that they do not have to administer a pension plan to the non-employee spouse for the next 30 years. Instead, they would rather pay you out now and save the administrative costs.
Keep in mind that for both types of plans, the plan administrator will usually send a letter that refers to the order that you mailed in as “qualified.” It will then typically state how it interpreted the order, and give both sides an appeal. — 30 to 60 days, on average. This appeal period is so that either side can object to how the plan interprets the court order. Many plans will allow you to waive this appeal period if both sides sign a waiver.
Once the appeal period is up, the plan will usually set aside the nonemployee spouse’s money into a temporary account and then either roll it over or write a check to the nonemployee spouse, depending on what that person elected in their paperwork in the prior step.
How Long Does It Take to Get QDRO Money? It Depends on Your Plan and Divorce Facts
As you can see, there are a lot of steps to getting this done. And there are a lot of “maybes,” “what-ifs,” and the need for cooperation among many parties throughout the steps to make this go smoothly. If you’re lucky, you have a straightforward 401(k) plan with an experienced plan administrator like Fidelity, both parties are on board with the QDRO, and an empty courtroom. Or, if you have a reluctant ex-spouse, a poorly worded divorce, and you are in New York City, where the courts have a one year backlog, you are not so lucky.
The best we can do when it comes to timing is to give you our best estimate and work with you to keep the ball moving until that final check is cut. If you would like to discuss your particular divorce and retirement plans, set up a free consultation with our office, and we’d be happy to chat.