When two people decide to separate or file for a divorce, they may need to consider retirement savings and existing pension plans during a financial settlement. This can be a complex matter, and certain documents will need to be drafted in order to formalize and legalize the situation. This gives rise to some three or four-letter acronyms which can sometimes be confusing, so it's a good idea to look at each solution in isolation. So, if you need to advise a client about the way forward, what do you need to know about EDROs, DROs, and QDROs?
An EDRO is an eligible domestic relations order and must be filed within the retirement system when a member divorces and their pension needs to be divided. In this case, it is specific to those who are active members of the public retirement system. It's a court order that gives directions about how to divide the pension at the time of retirement. The divorce alone does not trigger any division, but the EDRO has to be filed appropriately within the retirement system. In some cases, it is possible to file the EDRO electronically, but the documentation must conform with Michigan legislation.
Without an EDRO in place, the pension would only be paid to the participant. Once the documentation is created, it has to be signed by a judge and approved by the plan administrator. Until such time as it is approved by the plan administrator, it is simply referred to as a domestic relations order (DRO).
Attorneys must ensure that accurate documentation is filed so that the system does not pay too much in terms of retirement benefits to the alternate payee. The state may use a professional actuary to determine the applicable values. Once the administrator receives the EDRO, an official calculates how much the alternate payee should receive according to the order and will then adjust the participant's retirement allowance to reflect that value. They will then arrange for the alternate payee to receive a monthly lifetime annuity, and the rest of the participant's retirement allowance will be unaffected.
The legislation does not apply to those who are already retired and receiving a pension payout. An EDRO can only be filed for those who are not yet getting a pension check before their effective retirement date.
A domestic relations order is a court order that instructs the retirement plan coordinator to pay some of a participant's retirement benefits to their spouse, former spouse, or dependent children. In this case, such orders apply to non-qualified, deferred plans like stock options and any retirement plans given to corporate executives. It can apply to most private business plans.
A qualified domestic relations order is a court order that also requires a retirement plan to direct a portion of the participant's retirement benefits directly to their former spouse, spouse, and/or dependent children. This type of order typically applies to a retirement plan that corporations provide.
It's important to draft these orders carefully to avoid any problems at the outset and to consider the various rules associated with each administrator or department. For this reason, many family law attorneys in Michigan will outsource this work to an experienced attorney like Anne Pastrana. Anne specializes in providing QDRO drafting services and has over 10 years of experience in this field. She has drafted over 9,000 orders and has a full understanding of all the complexities associated with the different plans and statutes in the state of Michigan.
If you're looking for quick service at an affordable price, get in touch with Anne today.
