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QDROs and You: Separate Interest vs. Shared Payment

A Qualified Domestic Relations Order, or QDRO (“quadro”), is an order drafted by an attorney that allows retirement funds to be used to pay for things like alimony (spousal maintenance) or portions of marital property during divorce. QDROs can be drafted in one of two ways, known as “separate interest” and “shared payment.” The difference between the two lies on which party’s life expectancy will be used to gauge how the alternate payee receives benefits.

What is an alternate payee? In QDROs, the party whose retirement interest is being transferred is referred to as the “participant,” while the other party (usually the divorcing spouse) is called the “alternate payee.”

The Difference Between Separate Interest and Shared Payment

In a separate interest QDRO, the benefits of the alternate payee are adjusted to his or her own life expectancy. One of the benefits of this approach is that it allows the alternate payee to receive retirement benefits even if the participants has not yet retired; however, because the alternate payee’s life expectancy is taken into account, it is possible for the alternate payee to receive fewer benefits per month. For example, an alternate payee five years younger than the participant would have benefits cut to compensate for those extra years since the Employee Retirement Income Security Act (ERISA) forbids QDROs from providing increased benefits.

With shared payment QDROs, the alternate payee would receive a portion of the participant’s benefits, usually after the participant retires. In this type of QDRO, the alternate payee should be careful to note that they are not guaranteed lifetime payments unless the participant elects a reduced joint and survivor annuity for the alternate payee’s benefit. Without this option, benefits for the alternate payee would end if the participant were to pass away. If, for example, the participant passed away one year after retirement, the alternate payee would not receive benefits beyond that year without the reduced annuity.

For questions regarding QDROs and divorce, a dedicated Denver divorce attorney can help.