Some Commonly Asked Questions
Thank you for choosing the Law Offices of Anne Schmidt, LLC, to assist you with the drafting of your Domestic Relations Order(s). Most likely at this point, your divorce is either finalized or nearing completion, and you are exhausted emotionally and ﬁnancially. Our goal is to make this part of the process as painless and transparent as possible for you and to be here every step of the way for any questions that you might have. The following are probably just a few of the questions you would like answered:
What is a QDRO?
A QDRO is a court order required by both the IRS and the Department of Labor in order to assign retirement money (i.e. pensions, 401(k) plans, cash balance plans, ESOPs) to a former spouse. Normally, you can’t touch your employer-sponsored retirement without jumping through lots of hoops and hurdles, and even then, there are massive penalties attached to doing so. However, divorce is an exception to this rule, allowing you to assign this money without the tax ramiﬁcations through the entry of a QDRO. All of this is controlled by a statute called the Employee Retirement Income Security Act (ERISA) of 1974 that I just happen to have a Master’s degree in.
What is a QILDRO?
A QILDRO is a court order similar to the aforementioned QDRO, but for a plan administered by the state of Illinois. Unlike Federal law, which controls private employer plans, state plans such as Teacher’s Pensions, Firefighters, Police… are controlled by Illinois Pension Law.
Do I need a QDRO to divide an IRA?
No. Typically, dividing an IRA only requires a letter of direction. These forms are usually easily found on the Administrator’s website, and I am happy to walk you through how to ﬁll out the forms (or advise your ﬁnancial adviser accordingly).
How much does it cost?
My ﬁrm charges $680.00 to $1000.00 to draft each order. Although this fee does not include us entering the order into court for you, it does cover everything necessary to prepare the QDRO for entry into court, such as reviewing the plan documents and statements, communicating with the retirement plan administrator to make sure everything is approved and done properly, and drafting the order. In addition, if for some reason we need to redo something, these costs are included in our flat fee. Typically, your divorce attorney will enter the order for you in court and obtain the certiﬁed copy, which is required to be sent to the plan administrator. If you need me to enter it, or you want me to ﬁnd someone to enter it for you, then we can talk about that as well.
How fast does all of this happen?
We are pretty fast, but sometimes – not so much – we have to wait for them to approve things and that can take some time. Once the plan administrator receives the order that has been entered by the court, they legally only have 60 days to tell you whether it is “qualiﬁed” or not – meaning it has passed muster and the money will be segregated from your spouse’s plan and assigned to you. At that point, the plan administrator will send you a letter saying everything is approved along with distribution forms asking you what you want to do with your money.
What if my QDRO is rejected or not preapproved?
Often times, due to constant market fluctuations or minor changes that the plan requires to the order, we can receive a letter asking us to make changes before the plan will accept the order and assign the requisite monies. This is quite normal in the process and nothing to be alarmed about; any changes that we need to make to the order to get it approved by the plan are included in your flat fee. We have a very strong knowledge of which plans require preapproval or may require tweaking of our orders and will advise you accordingly during the process. The most important thing is to not be alarmed if you receive a letter from the plan saying changes are required; we are on it and will help implement those changes to make sure your order is approved and the money is assigned properly.
What’s a ‘participant’ and what is an ‘alternate payee’?
The participant is the member of the plan and the alternate payee is the person receiving the money from the member’s plan in the marital settlement agreement – for example, John Smith is a participant in the ABC 401(k) plan and Sally Smith, his ex-wife, is the alternate payee. The plan will require up-to-date personal information for both the participant and alternate payee to approve the assignment. We will send you an addendum form asking you for all of this info. If you are uncomfortable giving it via email, just call us and we will happily take it over the phone.
What do I do with my money?
Well, I am not a ﬁnancial adviser, so I cannot advise you the best way to invest or spend your money ( I can refer you to great ones if you need one) – but, what I can tell you is if you take a distribution (on a plan that allows a distribution like a 401(k)), you will pay taxes on the distribution, and if you roll over into an IRA, you will defer your taxes. Regardless, as I mentioned earlier, you avoid the 10% excise tax penalty through this nifty QDRO.
How much do you charge outside of the ﬂat fee?
If you need work done above and beyond the ﬂat fee, my rates are $300.00 an hour. Because I have a Masters in Beneﬁts, I often help people ﬁgure out their health care issues in divorce (i.e. COBRA vs. Illinois Spousal Continuation Coverage and Qualiﬁed Medical Support Orders). You need those to have access to your kid’s medical plans if they are covered under your former spouse. I also do mediation and collaborative law, basically, any family law that is not litigated.