Child Support and Retirement Benefits

by | May 15, 2023


Falling behind on your child support? Arrears piling up? You may have options!

Child support is a legal obligation that aims to ensure the financial needs of children are met after parents have separated or divorced. Many parents rely on these payments to support the day-to-day needs of a family but on occasion, a parent may fall behind on their child support obligations or may simply not have the income or cash flow available at the time to pay it. This can create significant financial hardships for parents and the children. Fortunately, for parents or Attorneys who may find their clients in this position, there is an effective but often overlooked tool for paying and obtaining past due child support, a Child Support Qualified Domestic Relations Order or otherwise referred to as a child support QDRO.

There isn’t much that a QDRO cannot do in the context of dividing a Participant’s employee-sponsored retirement benefits. A QDRO is most often used to divide retirement benefits pursuant to a property division settlement in divorce, but a QDRO can be used for much more. Pursuant to IRC §414(p)(8) and ERISA §206(d)(3)(K), a QDRO can award all or a portion of a Participant’s retirement plan benefits to a spouse, former spouse, child, or other qualified dependent of the Participant. QDRO’s can be used outside of wedlock, during the marriage, or even in a probate or civil court action but the use of a QDRO can be especially effective in securing a non-custodial parent’s retirement or pension benefits to satisfy an ongoing or past due child support obligation.

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There are only two requirements to execute a properly drafted QDRO. First, the QDRO must be issued or ordered by a state agency with the authority to issue judgments, decrees, or orders, so the QDRO must be signed by a judge, and second, the QDRO must “qualify” as a QDRO under the ERISA §206(d) and §414(p)(8) of the Internal Revenue Code (IRC). In short, the ability to execute a properly drafted QDRO is dependent upon a judge signing it and the type of retirement vehicle the benefits are in. Benefits-eligible to be divided pursuant to a QDRO are specific to employer-sponsored retirement plans that fall under the Employee Retirement Income Security Act (ERISA). ERISA-sponsored retirement plans include most private company-defined benefit pensions and defined contribution or 401(k) savings plans. The ERISA does not include, however, common retirement vehicles such as Individual retirement accounts (IRA’s), investment or brokerage accounts and government-sponsored retirement benefits.

When stars align, a QDRO can otherwise be a powerful tool for capturing child support payments and parents who are struggling with unpaid child support should strongly consider this option before it is too late. Once the employee/payor retires or commences benefits, any chance of executing a child support QDRO decreases significantly. Often overlooked, there is no requirement for either party to sign or endorse a QDRO. Only a judge’s signature is required, so it is possible to execute a properly drafted QDRO without the cooperation of the payor/employee participant. It’s also possible to direct the plan to distribute the 20% mandatory federal tax withholding from the Participant’s account so the direct distribution to the custodial parent is net of taxes. Last, it’s possible to execute multiple child support QDRO’s on the same retirement plan as necessary or ordered by the court.

If you or someone you know is considering a child support QDRO, contact Smarter Divorce Solutions to help you navigate the questions, options, and tax implications. We’re happy to work with you and all the professionals involved to ensure that the retirement benefits are divided and distributed pursuant to the intent of the agreement or order from the court.

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