Search
Close this search box.

Table of Contents

Domestic Relations Order (DRO)



Definition

A Domestic Relations Order (DRO) is a decree or order issued by a domestic relations court that allocates a portion of an individual’s retirement benefits to their spouse, child, or other dependent. This can occur as part of legal separations, divorces, child support, or spousal maintenance proceedings. The order gives the ex-spouse or dependent the right to receive benefits from the retirement plan.

Phonetic

Domestic: dəˈmɛstɪkRelations: rɪˈleɪʃənzOrder: ˈɔːrdərDRO: diː aːr oʊ

Key Takeaways

<ol> <li>A Domestic Relations Order (DRO) is a legal decree, usually in a divorce settlement, that allocates a percentage or specific amount of an individual’s retirement benefits to their divorced spouse. It requires an individual to give a portion of their retirement benefits to another individual, typically an ex-spouse.</li> <li>DROs are recognized by the Employment Retirement Income Security Act (ERISA), state and local governments, military retirement pay and the federal government’s thrift savings plan to a certain extent. They ensure that the ex-spouse or alternate payee can receive their designated share of the retirement benefits, even if the primary benefit holder pre-deceases them.</li> <li>Lastly, a DRO isn’t official until it’s been approved by both the retirement plan and the court. So, it’s crucial for the details to be correctly outlined and officially signed into order. If not done correctly, the order can be rejected, delaying the payment process.</li></ol>

Importance

A Domestic Relations Order (DRO) is of significant importance in finance and business, specifically in the context of pension benefits and divorce settlements. It is a judicial decree that recognises the legal right of a spouse, ex-spouse, child or other dependent of a participant in a retirement plan to receive a portion of the benefits payable under the plan. It helps provide financial security and stability by legally ensuring the division and allocation of these benefits. DROs are crucial in safeguarding the financial rights of dependents during separations, preserving the equitable distribution of retirement assets. Without a properly established DRO, an ex-spouse or dependent could potentially lose their rightful share of pension benefits.

Explanation

The primary purpose of a Domestic Relations Order (DRO) is to serve as a legal tool to ensure that specific rights pertaining to a retirement plan are assigned to an alternate payee, typically an ex-spouse or a dependent, after legal separations such as divorce or annulment. It is a judgement, decree, or order that recognizes the payee’s right to receive benefits from a participant’s retirement plan, under a domestic relations law. The DRO aims to provide a smooth and legally-binding manner of transferring potential retirement benefits to ensure the financial stability of the participant’s dependents. In terms of its functionality, a DRO guides the retirement plan in understanding how to distribute or split the retirement benefits. It must specify required details including the name and last known mailing addresses of the participant and each alternate payee, the amount or percentage of the participant’s benefits to be paid to each payee and so on. If the DRO satisfies the requirements of a specific retirement plan, it is deemed as a Qualified Domestic Relations Order (QDRO). This distinction is significant as QDRO allows the payee to receive benefits as if they were a participant of the plan, ensuring that individuals legally separated from the participant, whether through divorce or otherwise, have access to the financial resources they need.

Examples

1. Divorce Settlement: Bob and Sue have recently decided to end their marriage. They both have been contributing to their joint retirement fund for quite some time. Their divorce lawyer suggests getting a Domestic Relations Order (DRO) to outline how the nonparticipant spouse, Sue in this case, will receive a portion of Bob’s pension payments since they may not be divided without a DRO during their divorce settlement.2. Child Support Settlement: Amy is a single parent and her ex-spouse, John, works in a corporation and has an established retirement plan. As a part of their child support settlement, the court issues a Domestic Relations Order to ensure a portion of John’s retirement benefits would be diverted to Amy for child support payments.3. Alimony Payments: After many years of marriage, Michelle and David decide to part ways. As part of the divorce proceedings and alimony settlement, a Domestic Relations Order is issued to ensure Michelle, who was financially dependent on David during the marriage, is still able to receive financial support from David’s pension plan, ensuring a consistent income stream even after the divorce.

Frequently Asked Questions(FAQ)

What is a Domestic Relations Order (DRO)?

A Domestic Relations Order (DRO) is a judgement, decree, or order that is made pursuant to state domestic relations law and assigns the right to receive a portion of retirement benefits to an alternate payee.

Who usually requests for a Domestic Relations Order (DRO)?

Typical requesters of a DRO are usually the spouses, former spouses, children, or other dependents of a participant in a retirement plan.

What is the purpose of a Domestic Relations Order (DRO)?

The primary purpose of a DRO is to provide for equitable distribution of property rights, particularly retirement benefits, in the event of divorce, legal separation, or other domestic dispute under state law.

What information is typically included in a Domestic Relations Order (DRO)?

A DRO typically includes information such as the name and last known mailing address of the participant and each alternate payee, a clear description of the amount or portion of benefits to be paid to the alternate payee, and the number of payments or the time period to which the order applies.

Can a Domestic Relations Order (DRO) be modified?

Yes, a DRO can be modified by the court that originally issued it. However, any modifications must also comply with the specific requirements of the Employee Retirement Income Security Act (ERISA) and the plan administrator’s procedures.

What happens if a Domestic Relations Order (DRO) is rejected?

If a DRO is rejected, the plan administrator must promptly notify the participant and each alternate payee of the rejection and the specific reasons why. The involved parties will then generally be given an opportunity to correct the order.

Does a Domestic Relations Order (DRO) apply to all retirement plans?

No, a DRO only applies to specific types of retirement plans that are covered under the Employee Retirement Income Security Act (ERISA). It does not apply to plans like IRAs and government or military pensions which are governed by different rules and regulations.

Do I need an attorney to obtain a Domestic Relations Order (DRO)?

While it’s not absolutely necessary, it is often strongly advised to seek legal counsel when dealing with a DRO due to the complexities of pension law and the specific requirements that must be met for a DRO to be considered qualified.

Related Finance Terms

Sources for More Information


About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More