Do I really need a QDRO? Isn’t my MSA enough?

Divorcing couples will sometimes read online that plans can be divided using only an MSA. This can be alluring because, after all, QDROs cost money and take time. With an MSA already in hand, the possibility of a shortcut is tantalizing.

Is this just an Internet rumor?

To begin, let’s acknowledge that MSAs do often contain very clear language about how a retirement plan (401k, a pension, etc.) will be divided. Looking at that language, it’s easy to see why some people would imagine that that language should be sufficient.

There are, however, several reasons why an MSA will almost certainly not be sufficient.

• First, the language in an MSA is agreement between the parties and then often becomes an Order, which is binding on the parties. MSAs are NOT binding on anyone else, especially not binding on retirement plans.
• Second, most plans (with notable exceptions, such as FERS and TSP) are subject to a body of laws, the most prominent of which is Employee Retirement Income Security Act of 1974 (ERISA). These laws are designed to protect retirement dollars. Because of ERISA, the only way to give those dollars to your former spouse is through specialized order called a QDRO. An MSA won’t be sufficient under ERISA.
• Third, however well-crafted your MSA is, many plans require that QDROs have very specific requirements. MSA drafters are not expected to fully anticipate the needs of retirement plan. This is one major reason why QDRO drafting is a specialized expertise and why the QDRO drafter is brought in separately after the MSA and divorce.

Having said all of that (and perhaps this where the misconception comes from) there are at least one or two exceptions to the rule.

• First, there are some IRAs which will permit parties to transfer funds using an internal form. They may not require a separate Order apart from an MSA. It’s worth assuming that the IRA will require an Order and worth giving them a call to find out for sure. This is also something you should discuss with your attorney or a QDRO drafter.
• Second, there are certain kinds of private retirement benefits, such as stock rights or ownerships right. These are often not covered by ERISA and require either a different kind of Order or no order at all. Again, it’s worth assuming that you will need an Order. It’s something to discuss with your attorney or a QDRO drafter.

So, returning to the original question, do you really need a QDRO? Isn’t your MSA enough? The answer is that you almost certainly do. There are few very narrow categories where another option may be available. It’s worth discussing this with your attorney or a QDRO drafter, such as those available at Weinberg & Schwartz, LLC. We’re happy to help!