QDRO vs Legal Separation agreement

[Guest bmurphy61]

Client has a non-ERISA 403b. Has a legal separation agreement but no QDRO yet. Investment provider will not permit beneficiary change without QDRO unless ex-spouse signs off. Not sure if this will happen now due to contentious nature of proceedings. Does my client have any other recourse to pursue or must he simply wait until QDRO is issued?

[jpod]

1. If it is a non-ERISA plan (and sometimes that's a big "if"), the substantive QDRO rules do not apply. The only relevance of the QDRO rules are that the division of the benefits must be pursuant to a QDRO as defined in Code Section 414(p) in order for the participant to avoid being taxed on distribution of benefits to the alternate payee.

2. Unless there is a court order or a State law prohibiting or restricting the participant's ability to designate a beneficiary, he should be allowed to designate anyone he wants to designate as a beneficiary.

[Guest mjb]

jpod: Under IRC 1041 a QDRO is not required for a non taxable division of an annuity pursuant to a divorce. In a non erisa plan the parties can agree to divide the annuity and have the ins co issue a policy to the ex spouse for the amount specified in the divorce decree.

[jpod]

mjb: Please cite authority for the proposition that 1041 trumps Sections 403(b) and 72 of the Code. I'll keep an open mind, but if 1041 does trump those sections, what does 414(p)(9) do?

[Guest mjb]

1041(a) permits the non taxable transfer of property between spouses or former spouses. Property includes tangible and intangible personal property. Reg. 1.1041-1T Q/A-4. 403b plans not subject to ERISA are not subject to the restrictons on alienation under IRC 401(a)13). 1041 is similar to IRC 408(d)(6) which permits a tax free division of an IRA upon divorce.