Equitable distribution in North Carolina can involve numerous types of marital property and hybrid property, including real estate, bank accounts, investments, vehicles, and personal property like jewelry. Retirement accounts are also a common asset that courts are asked to divide in divorces, but distributing certain retirement plans comes with complex legal requirements.
ERISA and QDROs
The Employee Retirement Income Security Act (ERISA) is a federal law that establishes standards for retirement and health plans. It covers defined benefit plans and defined contribution plans, such as 401(k) plans, employee stock ownership plans, and profit-sharing plans.
A qualified domestic relations order (QDRO) is required to transfer a portion of the funds in an ERISA-governed plan to another person, like a spouse or ex-spouse. There are strict rules for completing a QDRO, and many plans have requirements specific to them. The QDRO process includes drafting the order, submitting it to the Judge, and sending it to the plan administrator for approval.
However, not all retirement accounts require a QDRO to transfer funds. Individual retirement accounts (IRAs) do not typically require a QDRO to effectuate the transfer of the funds in a divorce. Often, spouses include terms regarding the transfer in their settlement agreement or a judge may include the requirements in the divorce decree.
Welch v. Welch
Transferring an IRA is often a simpler process than an account like a 401(k) because a QDRO isn’t needed, but this is not always the case. In Welch v. Welch, a husband and wife who recently divorced were supposed to split Husband’s IRA 50/50. An order was entered by the trial court in 2008 stating that the transfer should occur as soon as practicable following the entry of the order.
Nearly 11 years later, in 2019, Wife filed a motion to find Husband in contempt because he had not yet transferred the funds she was awarded as part of their divorce. Her motion was denied by the trial court because the statute of limitations had lapsed. She then filed a motion asking the court to exercise its duty to transfer the IRA to her, but the trial court also denied this motion. She appealed both denials, but the Court of Appeals affirmed the lower court’s decision.
Then, in 2021, Wife moved the trial court to enter a domestic relations order (DRO) to effectuate the transfer of the IRA. This motion was also denied. The trial court stated that Husband’s IRA was not a qualified retirement plan pursuant to ERISA; therefore, a QDRO was inapplicable. The lower court also restated the issue of the statute of limitations having expired in Wife’s motion to seek enforcement of the 2008 order. Wife appealed.
QDRO and DRO Are Different
The case in question is this appeal by Wife, in which the Court of Appeals ultimately disagreed with the trial court. The appellate court stated that once the order was entered by the trial judge, it became a court-ordered equitable distribution for purposes of distributing retirement plan benefits. QDROs and domestic relations orders are not the same thing, and the appellate court disagreed with the trial court’s decision to conflate the two. A domestic relations order is an appropriate mechanism to distribute an IRA, and there is no requirement for an IRA to be a qualified retirement plan under ERISA if a DRO is issued.
The Appeal
Regarding the trial court’s ruling on the statute of limitations, the Court of Appeals stated that this was the first time such a case was presented to them, and they reviewed case law in other states to guide their decision. Specifically, the North Carolina appellate court looked at two cases, one out of Vermont and the other out of Michigan. The Court of Appeals in this case determined that the statute of limitations as applied by the trial court was not appropriate in cases like Welch v. Welch. It does not prevent a request for entry of a DRO as a way to effectuate a prior order as long as entering such an order does not impact the substantive rights of the parties.
The trial court’s decision was reversed and remanded by the appellate court.