Often divorces divide retirement plans like a 401k or defined benefit pension. A judge signs a QDRO (qualified domestic relations order) ordering the retirement plan administrator to divide the benefit. The ability to take funds from the plan under the QDRO depends upon the terms of the QDRO and plan rules. Some plans allow the alternate payee to take the money as soon as administratively possible. Other plans limit distributions to some time in the future.
The QDRO may order that the funds unavailable until certain conditions occur. That is true even if the plan rules would otherwise allow the alternate payee to take his or her share. This can be a real problem if the alternate payee finds himself or herself in a financial bind. Options to obtain the money earlier than what the existing rules permit are limited and will be explored here.
QDRO and Retirement Plan Basics in Texas
First, let’s talk a little about the playing field on which we play in dealing with QDROs. The retirement benefits are the result of employment. The plan rules governs the benefits. Enforcement of plan rules must be even. Exceptions only exist within very narrow areas of plan administration. Generally the rules are what they are. In your divorce, the divorce decree spelled out a division of retirement benefits.
A QDRO is then necessary for most private retirement plans (and some government plans) as a separate order that orders the plan administrator to execute a division of benefits within the provisions of the QDRO. The plan administrator must follow the terms of the QDRO so long as the order conforms to the federal law that governs these benefit plans (ERISA) and the plan rules.
If the QDRO does not meet these qualifications then the plan administrator will reject the order. A new QDRO must be written and signed.
Let’s discuss how the playing field takes some options out of play.
The most obvious limitation comes in the form of plan rules. If the plan rules applicable to the divided benefit restrict distributions to some later date, such as the employee’s retirement or reaching a certain age, then the plan cannot distribute the funds early in violation of its own rules.
Even if you have a very good reason and the plan administrator wants to help you out, the plan administrator cannot change the rules or create an exception to help you out in an unfortunate situation. A change to the plan rules permitting an earlier distribution may or may not benefit you depending upon some very detailed provisions of benefits law. Generally, however, the plan rules do not change and you have what you have.
QDROs and Divorce Decrees in Texas
Another major impediment will be the terms of the benefit division in the divorce decree. The QDRO should match the terms of the divorce decree so if the divorce decree awards a share of the retirement benefit subject to distribution at some point in the future then whatever the divorce decree states may be a problem if the decree has this type of language.
Unfortunately under Texas law the ability to change the terms of a divorce decree after the divorce is limited and with time the reasons that permit the decree to be changed or undone become fewer and fewer until it is nearly impossible.
Undoing the divorce or changing the provisions is often a lengthy and extremely expensive process so it may not be a feasible option if the whole point is to get access to money.
So now let’s get into answering the question and when you can take out the money earlier. We have to assume that whatever action you intend can occur under the plan rules.
We will also need to look carefully at the terms of the divorce decree. If the divorce decree does not specify timing regarding taking money out of the retirement plan then the QDRO is the only obstacle. Here the job is merely to amend or modify the QDRO to remove those provisions so the timing of the distribution will be resolved under the plan rules.
QDROs under the Texas Family Code
Understand that under the Texas Family Code the decision to amend the QDRO is up to the judge. Not all judges will amend these orders and there may be a good reason why the timing provision is part of the QDRO. This, however, is the best shot at gaining access to the QDRO funds.
If the divorce decree contains restrictive timing provisions and those terms are in the QDRO then your job is difficult. The language in the divorce decree likely remains. We may not have a valid legal basis to alter the decree or undo the language. If a valid legal basis exists it may be too expensive to pursue.
The best opportunity is to work with your ex-spouse on an amended QDRO. That requires both the judge and your ex-spouse to be on our side. Not the best place to be. In the majority of divorces these specific terms are not in the divorce decree.