A participant's former spouse has obtained a court order directing the employer's 401(k) plan to pay a specific sum of money, the vast majority of which will be applied toward attorney's fees for the parties and a small portion of which would be applied to the former spouse for rent, security and moving expenses. While the very small portion of the amount of money could be considered to relate to alimony, can the order qualify if a vast majority of the money is applied toward attorney's fees?

Is how the money will be spent one of the qualifications of a QDRO?

No, but the definition of a domestic relaitons order is one which "relates to the provision of child support, alimony payments,or marital property rights to a spouse, former spouse, child or other dependent of a participant," Code Section 414(p)(1)(B)(i).

The plan does not care how money is ultimately used. The plan only cares that it is a domestic relations order (e.g. issued in connection with divorce) and meets qualification requirements. The plan can pay only an alternate payee. If the order provides for payment to a lawyer, or joint payment to a lawyer and alternate payee, then the order does not qualify. If the alternate payee pays to the lawyer all of the distribution from the plan to the alternate payee, that is not an issue for the plan. Otherwise the plan would be concerned with liquor and cigarettes. It does not matter if the court orders the alternate payee to pay the lawyer, but the order cannot give the lawyer an interest under the plan.

A QDRO can only order a payment from the plan to a party designated as an alternate payee under 414(p). Lawyers are not designated as APs who can receive payment from the plan. There was recent federal court case which rejected payment to an attorney for the AP under a DRO. What is usually done is that the QDRO provides for payment to the AP who then endorses the check over to counsel.