USING A QDRO TO COLLECT SUPPORTPAYMENTS

I. INTRODUCTION

The use of a Qualified Domestic Relations Order (QDRO) is an often overlooked tool in the

collection of child support and alimony. While most family law attorneys are familiar with working with

QDRO's for the purpose of distributing marital property in a divorce proceeding, many do not realize

that the QDRO is also a valuable tool in the collection of child support and alimony payments. Pursuant

to 29 D.S.C. § 1056, a retirement plan can be used to provide child support and alimony payments

through the use of a QDRO. A QDRO is defined as a judgment, decree, or order which relates to the

provision of child support, alimony payments, or marital property rights to a spouse, former spouse,

child or other dependent of a participant and is made pursuant to a State domestic relations law. 29

D.S.C. § 1056(d)(3)(B)(ii)(I)and (II).

Although the QDRO may be beneficial tool that is underutilized in the collection of child support

and/or alimony payments, it should also be used with care. For example, if the payor is already

receiving payment from the retirement plan, then a QDRO would not be advisable. The payee would

receive more immediate relief through the use of a wage assignment or garnishment of the benefits being

received by the payor. h1addition, there are other factors which must be carefully considered by the

family law attorney before using the QDRO in the collection of child support or alimony payments such-

as whether the retirement plan is a defined benefit plan or a defined contribution plan, the tax

implications associated with using a QDRO for either child support or alimony, the costs associated

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with using the QDRO to collect child support or alimony and whether or not there is a previous QDRO

in effect.

II. CONSIDERATIONS

It is crucial for the family law attorney to investigate the retirement plan thoroughly prior to

drafting the QDRO. For example, discovery will be necessary to determine the payout options

available under the plan at issue. Is the plan a defined benefit or defined contribution plan? A defined

benefit plan is a plan that specifies the benefits to be received by the participant at retirement. In most

defined benefit plans, the benefit is stated as a percentage of the pre-retirement salary, which is payable

for the participant's remaining life. If the plan is a defined benefit plan, it must be determined how much

time must pass before the payor will begin receiving the benefits. A defined contribution plan is a type

of plan in which employer contributions are allocated to the account of individual participant. This type

of plan is similar to a personal savings approach. If the plan is a defined contribution plan, it must be

determined what time periods a lump sum distribution can be received.

If the retirement plan is a defined benefit plan or a defined contribution plan will also have an

effect on the order obtained ITomthe State domestic Court and the drafting of the QDRO. A defined

benefit plan will payout the distributions over time, usually in monthly installments, while a defined

contribution plan will usually provide an immediate lump sum distribution. A QDRO cannot order a.distribution that is not already available to the participant through the plan. If the plan does not permit

Ian immediate payment, then an actuarial calculation must be made to determine the present value of the

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future payments. If the plan is a defined benefit plan, then it must be determined ifthe benefits will be

received in the near future. If the benefits will be received by the payor in the near future, a QDRO

could be used to collect current child support or alimony payments. However, if there will be a

substantial period of time before the payor begins receiving the benefits, perhaps the QDRO is not the

solution to meet your client's needs. In addition, while the use of a QDRO with a defined contribution

plan may be beneficial for the collection of arrearages in child support due to the ability to receive a

lump sum distribution, it may not be the best solution for the collection of a current child support

obligation because there is not an opportunity for ongoing payments.

When using a QDRO to collect child support or alimony payments, the family law attorney

should consider the income tax implications of each type of distribution. Child support payments are

non-taxable to the payee, while alimony is considered taxable income to the payee. If the purpose of

the QDRO is to collect child support payments, then the Court order or decree and the resulting

QDRO should clearly state this fact and the QDRO should be carefully drafted so that the payor is

responsible for paying the income taxes for the distributions to the payee. Similarly, the distributions for

alimony payments are taxable income to the payee and should be stated as such. Further, a QDRO

used for the collection of alimony payments must address the situations presented by the termination

and/or modification of the amount of alimony owed by the payor. Because alimony often terminates

upon the death of one of the parties or the remarriage ofthe payee, the QDRO should address these-

events. A similar situation occurs when a child emancipates and the child support obligation terminates

or is modified for any reason. A properly drafted QDRO can and should be able to adapt to any of

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these events.

When using a QDRO to collect child support or alimony payments, the costs of collecting the

child support and/or alimony payments should also be addressed in the QDRO. The Courts have

determined that if a State Court has entered an order, judgement or decree which includes costs in

addition to the actual support obligation owed, such costs can be included in the QDRO. "ERISA

does not require, or even permit, a pension fund to look beneath the surface of the order. Compliance

with a QDRO is obligatory." Blue v. VAL COl:poration.160 F.3d 383. (Attorney fees can be

collected through the QDRO over the objection of the payor.) Besides the payee's attorney fees

associated with collecting the child support or alimony payments, interest on the child support and/or

alimony owed to the payee should be included in the QDRO. And finally, an additional cost that should

be considered when drafting the QDRO is the cost for review of the QDRO. Some plan administrators

are now charging a fee to review a drafted QDRO prior to acceptance ofthe QDRO. This cost should

be paid by the payor and the QDRO should clearly state how the payor is to pay this fee. Although

some plan administrators are paying this cost out ofthe funds remaining in the retirement account, many

plan administrators are taking the cost directly from the alternate payee's funds. The family law

attorney needs to determine whether the plan administrator for the particular retirement plan charges

any fees to review the QDRO prior to acceptance and if so, how they collect such fees.

-The use of a QDRO for the distribution of a retirement account for purposes of property

distribution at the time of divorce does not prevent an additional QDRO from being ordered for the

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purposes of support payments on the same retirement account. In short, more than one QDRO can be

used for a given retirement account without affecting the benefits of another alternate payee. In

addition, if a QDRO is used to collect child support or alimony arrears and the payor continues to not

pay the current support obligation, then a subsequent QDRO can be used to collect the additional

arrears. However, in this situation, the subsequent QDRO would replace the previous QDRO and

must be drafted with that consideration in mind.

In conclusion, ERISA provides for the collection of child support and alimony payments

through the use of a QDRO. However, it is important for the family law attorney to reviews the QDRO

to ensure it meets the needs of the client and addresses all of the variables associated with enforcing the

Court's support order.

III. CASE LAW

As previously stated, ERISA provides for the use of QDROs for the collection of child support

and alimony payments. However, there is also a minority view that places some limitations on the

ability to use a QDRO for this purpose. Below are a few synopsis from cases which interpret ERISA

and the ability to use QDROs to collect child support and alimony payments.

-Hogle v. Hogle, (732 N.E.2d 1278)

A former husband appealed an order that transferred benefits from his pension plan to his

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fonner wife to satisfy a California judgment on an alimony arrearage. The court detennines ERISA

does not necessarily require that a QDRO be a part of the actual judgment in a case, and a retirement

plan my be garnished to satisfy a past-due alimony obligation based on a post-decree QDRO. Since

ERISA does not provide an enforcement mechanism for collectingjudgments, state law methods for

collecting money generally remain undisturbed by ERISA; otherwise there would be no way to enforce

a judgment won against an ERISA plan.

Blue v. UAL Co:r:poration,(160 F.3d 383)

Appellant's fonner wife was awarded a QDRO to collect child support owed her by the

Appellant, Robert Blue. Appellant objected to the State Court including in the QDRO his former

wife's attorney fees incurred for purposes of attempting to collect the child support owed to her. Most

contemporary pensions are covered by the anti-forfeiture and anti-alienation clauses ofthe Employee

Retirement Income Security Act (ERISA). ERISA authorizes two exceptions to this rule. One of

those exceptions occurs when a QDRO may require payment to or for the benefit of the participant's

family. A pension trust is not a party to the litigation that produces the QDRO and is not bound by the

order under doctrines of preclusion. The fund is just a stakeholder, a source of wealth to which the

holder of a judgment may turn for satisfaction. ERISA does not require, or even permit, a pension fund

to look beneath the surface of the order. Compliance with the QDRO is obligatory.

-MINORITY VIEW

Hoy v. Hoy, (510 S.E.2d 253)

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Fonner wife filed post-divorce motion to reinstate and for entry of proposed QDRO under

ERISA, awarding her $84,000 from fonner husband's retirement plan in payment of spousal support

arrearages judgment. The State of Virginia Court of Appeals held that wife could not recast her claim

as a judgement creditor into a QDRO that would substantively modify the tenns of the final divorce

decree.

In re Marriage of Thomas, (789 N.E.2d 821)

The Court determined that ERISA pennitted the trial court's entry of a QDRO to assign

pension and other retirement benefits to a fonner spouse to satisfy a judgement for past-due alimony

and child support payments. However, the fonner spouse who sought assignment of plan participant's

retirement accounts after obtaining judgment for an alimony and child support arrearage, was only

entitled to assignment to the extent of value ofthe retirement accounts at the time of the dissolution of

the marriage since that is the beneficial interest that was acquired during the marriage.

Greg J. Ortiz, Esq.Ham & Ortiz, LLC200 Plaza Drive, Suite 110Highlands Ranch, Colorado 80120(303) 683-8400gjortiz@hamortizlaw.com

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