Divorce and the 61 Degrees North LLC 401(k) Plan: Understanding Your QDRO Options

Unlike pensions that are based on a formula, 401(k)s like the 61 Degrees North LLC 401(k) Plan are individual account plans with tracked balances. This includes both employee contributions (amounts the participant personally put in) and employer contributions (matching funds or profit-sharing contributions made by the company).

These contributions are typically divisible in a QDRO. However, you must determine whether to divide all contributions or only those made during the marriage. A popular method is to award the alternate payee a percentage (usually 50%) of the marital portion of the 401(k), defined as contributions earned from the date of marriage to the date of separation or divorce.

Many companies, especially in the general business sector, condition employer contributions on a vesting schedule. This means that employer matches may not fully belong to the employee unless certain service requirements are met.

A QDRO can specify whether or not the alternate payee should receive a share of unvested contributions. Most plans only allow division of the vested portion, but you need to work with a QDRO attorney familiar with the vesting policies of the 61 Degrees North LLC 401(k) Plan to address this correctly.

It’s common for participants in 401(k) plans to have outstanding loans. These loans complicate the division of the account because the loan balance is subtracted from the account’s total value.

You and your attorney should determine:

• Whether the loan existed on the date of division
• Whether to include the loan as part of the marital estate or exclude it from the QDRO allocation

Make sure the QDRO specifies whether the loan is to be included in the calculation of the marital portion or should be the sole responsibility of the participant.

Many modern 401(k) plans—including the 61 Degrees North LLC 401(k) Plan—allow participants to contribute to both Roth and traditional (pre-tax) accounts. These two types have very different tax treatment:

• Traditional 401(k): Contributions are tax-deferred. Taxes are paid upon distribution.
• Roth 401(k): Contributions are made with post-tax dollars. Qualified distributions are tax-free.

Your QDRO needs to specify how each account type is to be divided. If only one type was contributed to during marriage, the division may be limited to that account. Incorrectly allocating Roth contributions into a pre-tax account for the alternate payee (or vice versa) could create unnecessary tax issues.

Start by gathering all available plan documents and participant account statements. Although plan number and EIN are currently unavailable, we can obtain them during the QDRO process. These will be required to correctly complete the order.

This step is especially important. The 61 Degrees North LLC 401(k) Plan has rules you must follow to ensure the order will be approved. A standard template may not work. At PeacockQDROs, we draft QDROs based on actual plan language and get preapproval when available to avoid costly delays.

Once the QDRO is drafted and approved by both spouses (or their attorneys), it must be signed by the judge and entered with the court that handled your divorce. A QDRO is not valid until it’s filed with the court—even if both parties agree to the content.

After court filing, the QDRO must be sent to the plan administrator for processing. If approved, benefits are then segregated and rolled over to the alternate payee’s individual IRA or other qualified retirement account. We stay involved during this processing period to ensure nothing falls through the cracks.