According to the provisions of the Employee Retirement Income Security Act (ERISA), qualified domestic relations orders (QDROs) can be utilized for one of three distinct purposes: (1) to provide property rights to a spouse or former spouse; (2) to provide child support to a spouse, former spouse, child, or other dependent of a participant; and (3) to provide maintenance to a spouse or former spouse of a participant.
While QDROs are most associated with the division of the parties’ respective property interests in a pension, they are also an effective tool for the collection of past-due child support or maintenance. In fact, Section 414(p) of the Internal Revenue Code references domestic relations orders for child support first and for property settlement purposes second.
In order for a QDRO to be approved by the plan administrator, it must include the name of the alternate payee. An alternate payee can be a spouse, former spouse, or dependent child of the participant.
Whenever the spouse or former spouse is named as the alternate payee, such spouse or former spouse will be taxed on the QDRO distribution. This is true even if the QDRO was drafted for child support arrearage purposes.
If your QDRO is for child support purposes, you may want to consider listing the child as the alternate payee in the QDRO itself, rather than naming the participant’s former spouse. When the child is named as the alternate payee, the participant will be taxed on the distribution.
Of course, QDROs work only if the parent participates in an ERISA-governed retirement program, such as a 401(k) plan or pension plan.