401k Plan - must a QDRO be prepared

401k PS plan.  The Owner and his wife are going through a divorce which has been ongoing since last year.  It is a nasty divorce scenario and may go on for another year or so.  The Owner and his wife both have an account in the 401k plan.  The wife terminated employment last year and is requesting a partial distribution now to pay her Attorney's fees.  We received the request to approve her partial distribution.  Since we are aware of the impending divorce since last year, we informed all parties that a QDRO is be prepared for both the Owner and his wife's benefits.  The Attorneys on both sides indicated that the QDRO is not necessary as the Owner said it was okay for his soon to be ex-wife to take the distribution.  I am not in agreement with this.  There is nothing in the QDRO procedure in the plan document that addresses this issue.  Can this distribution be processed without a QDRO?

On 7/18/2025 at 12:01 PM, DDB BN said:

Since we are aware of the impending divorce since last year, we informed all parties that a QDRO is be prepared for both the Owner and his wife's benefits. 

Why?  What is your relationship to the plan?  To the parties?  Do you know whether the divorcing parties expect to include any particular assets (in this case, the 401k accounts) in their asset division?  Even if you do know, is it any of your concern?  Is it possible the parties will find ways to simplify asset division by ignoring some?  Is it possible both accounts are small enough so as to be trivial?  (BTW, these questions might be inter-related.)

I'm not really asking you for answers, just pointing out that the plan (and its administrators) should stay out of the legal proceeding.  It seems likely the QDRO procedures direct you to act on a (draft) DRO only if you get one.  Alternatively, if your QDRO procedures direct you (or someone) to speak up (or take any specific action) whenever you hear about a potential divorce of a plan participant, then you should quickly engage an ERISA attorney to help you correct that.

Consider also whether the plan’s administrator might have a duty to consider a claim fairly. That might mean the administrator should not deny a claim if the claimant is severed from employment, meets any further conditions for the distribution claimed, and no plan provision impedes or delays the distribution.

This is not advice to anyone.

What about getting the husband's written consent on the withdrawal? That would seem to be the easiest if the husband really is OK with the partial withdrawal. 

Otherwise, let the ERISA Plan Administrator make the call and they can consult with their counsel on the matter.

This is exactly why plans should follow the actual law rather than the shallow, ill-informed, Department of Labor suggestion for the plan not to follow the law (to take action only upon receipt of a domestic relations order) and instead follow some some wispy notion or information that maybe there will be a domestic relations order someday or maybe there won’t, and thus the plan should interfere with plan terms and legal provisions otherwise clearly applicable.

I am with everyone else.  They have covered the law so I have only one more question:

Why are you putting yourself in the middle of two divorcing people?   

I try as hard as I can to stay out of that position with all my clients.   Divorces can be high emotion situations were people get nasty.   Leave me out of it as much as possible is my position 100% of the time. 

You are asking the wrong question.  The question is not whether or not you need a DRO to transfer pension and retirement assets in connection with a divorce?  The answer to that is yes absolutely for many of the reasons pointed out above. 

The question is whether or not a domestic relations order be issued as part of a divorce proceeding to be a QDRO?  And the answer to that depends on state law and the plan documents.  

Read the attached Memo that starts Maryland law and ends with

"No. A domestic relations order that provides for child support or recognizes marital property rights may be a QDRO, without regard to the existence of a divorce proceeding. Such an order, however, must be issued pursuant to state domestic relations law and create or recognize the rights of an individual who is an “alternate payee” (spouse, former spouse, child, or other dependent of a participant)."

David

CAN A TSP RBCO AND FERS COAP BE ENTEREDIF THE PARTIES ARE ßLEGALL.pdf

Do your QDRO procedures state anything about freezing accounts and, if so, under what circumstances?  If they don't say anything or if they do but don't cover this situation, then you don't have any authority to freeze the accounts.   If worried, I agree with the sending a letter approach...maybe send a letter to both spouse's stating something like... We have been informed that a divorce is impending and that QDROs may be being prepared in connection with the divorce.  Your accounts will be frozen of [14] days unless a QDRO is submitted (or letters from your attorneys stating a QDRO will be submitted) by such date.  If we do not receive a QDRO (or letter from you attorneys) on or before the end of this [14-] day period, the accounts will be unfrozen and each participant will be permitted to take loans and/or distributions as permitted under the terms of the plan.  I am sure you can be more artful.  At least this way you only put a short freeze on the account, which sounds like what you want to do, and most of all it should not put any extreme undue hardship on the participants.   Just practical thoughts...

Agree with Artie M (although and neither of us know what we want to know) that communication about proposed treatment and short deadlines for response is the right approach here. If the plan has been communicating directly with the lawyers for both parties, then direct things to the lawyers. If not, direct them to the participants. 

I don't agree.  The Plan Administrator is not permitted to look behind a DRO and determine whether or not it is valid under state law, or is a sham DRO, or otherwise defective.  But their attorneys tell them to CYA in the safest way possible.....do nothing.

See my attached Memo 

Looking Behind a QDRO.pdf

Another factor to support fmsinc's position - once a divorce is filed, there would likely be a Family Law Order prohibiting the parties from dissipating assets without the other spouse's consent or court approval. It's not the plan's responsibility, and arguably right, to delay a distribution to inquire whether the funds are being withdrawn for a nefarious purpose in violation of a possible court order. The plan doesn't want to know all the details and only follows the rules applicable when a DRO is actually received. 

I think these messages are talking at cross purposes. No one is suggesting looking behind a DRO. The absence of a DRO is the fundamental problem.

I should have stated it differently. I think distributions must be made in accordance with the terms of the plan document. It would be unusual for a plan to have language permitting the delay of a distribution prior to the receipt of a DRO. State law would be applicable to protect the other spouse once a plan distribution is made. 

Many of you that simply state a plan can't put a hold on these accounts prior to a DRO being presented to the plan.  However, in practice, many plan administrators do place holds on accounts prior to the receipt of a DRO.  I did a quick internet search and pulled these examples (I have no idea if they are current procedures but they illustrate that at least at some time, these administrators put holds on accounts prior to a DRO being presented.

This is from VOYA (https://www.voya.com/sites/www/files/2020-11/Sample%20QDRO%20Procedure%20and%20Checklist2.pdf)

This one is from Empower (QDRO Processing)

This one is from TIAA-CREF (QDRO_approval_guidelines.pdf)

v

I simply ran a Bing search for "qdro procedures freeze" and these three were the first three plan administrator QDRO procedures that came up in the first page of results.  Each refer to a possible freeze/hold/restriction prior to receipt of a QDRO.  I know that just because some one is doing something doesn't make it legally correct, but Voya, Empower and TIAA are not mom and pop shops.  

We advise clients not to put holds but if they still desire to do so, we advise them to clearly spell out in their QDRO procedures the exact circumstances under which holds are placed and removed , and the procedures are sent to the parties (including attorneys if they have that information) whenever a hold is placed on an account (whether upon or prior to the receipt of a DRO or draft DRO).

Examples of plan shooting themselves in the foot with ammunition from the DOL.