If you’re a family lawyer with clients who are owed a lot of overdue child support, it can be tough to collect that money. One option that’s often overlooked is using a QDRO to get the money from the ex-spouse’s retirement plan. This worked for a client named Mary who hadn’t received child support for over 10 years. Her lawyer found out they could use a QDRO to get the money owed from her ex-husband’s 401(k) plan. A QDRO is a legal order for a retirement plan to pay a portion of the account to a nonparticipant spouse. It can be used for child support, alimony, or dividing marital property. It doesn’t matter where the ex-spouse lives, and the process usually isn’t difficult. A lawyer can help collect overdue child support, including interest, from a retirement plan. The money can be paid directly to the custodial parent and is not taxed. When a QDRO (Qualified Domestic Relations Order) is used to split a retirement plan in a divorce, it can create tax issues for the recipient. This is because the recipient may have to report it as income and pay taxes on it, even if it’s for child support. This goes against the tax code, which says child support isn’t taxable.
So, the QDRO should specify that the distribution is for child support arrears and that the plan participant is responsible for paying the taxes on it. Not all retirement plans allow for immediate lump sum distributions, and some plans can’t be divided by a QDRO at all.
It’s important to understand these issues and work with a lawyer who specializes in QDROs when dealing with retirement plan divisions in a divorce. When couples get divorced, they have to divide their retirement savings. This sometimes includes a 401(k) plan and a pension plan. The ex-spouse who doesn’t have the retirement savings might also be owed child support. In one case, a man’s 401(k) savings was used to pay back child support not just once, but twice. This happened because he kept owing more child support over time. Eventually, almost all of his 401(k) money went towards paying off what he owed.
To do this, the court used something called a QDRO, which is a legal document that decides how retirement savings will be divided. If the retirement savings are in the form of a pension plan that pays out monthly after the person retires, the process is a bit different. That’s because pension plans don’t have a specific account balance like a 401(k) does. This is why it’s important to make sure all retirement savings are accounted for in a divorce. If a spouse owes child support and has a retirement plan, the amount they owe can be compared to the value of their retirement benefit. The custodial parent may be able to receive a portion of the monthly retirement benefit as repayment for the missed child support payments. This would be in the form of a monthly payment, as most retirement plans don’t allow for lump sum payments. If a divorced parent owes child support and has moved away, it can be hard to collect the money. But they may have retirement benefits that could help pay the child support. You can find information on this from the Social Security Administration’s website or the Federal Office of Child Support Enforcement’s website. A financial analyst named Timothy Voit knows a lot about using retirement benefits to pay child support and has helped many people with this. This article was written for the Family Law Section.
Source: https://www.floridabar.org/the-florida-bar-journal/qdrosa-powerful-tool-for-child-support-enforcement/
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