Who is the Alternate Payee?
Every QDRO governed by ERISA will identify an "Alternate Payee."
ERISA [29 USC § 1056 (d) (3) (K)] defines "Alternate Payee" like this:
"any spouse, former spouse, child, or other dependent of a Participant who is recognized by a Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such Participant."
Notice that any of the following will qualify:
Current spouse (as in a legal separation),
Former spouse (as in a divorce, or alimony arrearage)
Child (as in child support arrearage)
Other dependent (is this the path for a same sex partner?)
Current Spouse: QDROs are usually drafted in the context of a divorce. So many lawyers don't realize that a current Spouse can be an Alternate Payee.
Here's just one example of when it may be convenient to prepare a QDRO and name the current spouse as Alternative Payee: the parties are separated and the divorce may not be finalized for some time. Yet the spouse needs the funds that the QDRO will bring right now.
Of course there are many other scenarios in which it may be advantageous to name a current spouse as Alternate Payee.
Attorneys are well advised to include this technique in their toolbox of skills.
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Former Spouse: The vast majority of QDROs are used to divide marital property. So it stands to reason that the former spouse will usually be the person named as Alternate Payee.
But a QDRO can also be used for current or past spousal support.
Whether used for property division or spousal support, the former spouse will be named as the Alternate Payee.
But I must warn you that drafting a QDRO for spousal support is treacherous and fraught with potential for malpractice.
Because the IRS has very specific rules and regulations which defines when the IRS will recognize a payment as alimony. The typical language of a "property division" QDRO violates many of those provisions.
So the attorney should exercise extraordinary care in drafting a QDRO for spousal support.
Child: A child is most typically named as the Alternative Payee when the QDRO is drafted to collect past due child support.
In fact, in instances where a child support obligor participates in a defined contribution retirement plan, QDROs have proven to be very effective in collecting child support arrearages.
But a child support QDRO is vastly different than a property division QDRO.
Here's just one example. In a property division QDRO, the former spouse, as Alternate Payee, is responsible for all taxes on the funds received. But child support is not taxable. So the QDRO must be drafted in such a way that the tax liability remains with the Participant.
Other Dependent: This is perhaps the most intriguing of all the categories listed in the statute. Given the rapid developments in the area of same sex marriages across the country, it's just a matter of time before litigation occurs to define whether a same sex partner is a "dependent" under this statute.